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Bharti Airtel net margins suffer on record growth; shares fall

Bharti Airtel net margins suffer on record growth; shares fall
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First Published: Fri, Jul 25 2008. 12 32 AM IST
Updated: Fri, Jul 25 2008. 12 32 AM IST
New Delhi / Bangalore: India’s largest cellphone operator Bharti Airtel Ltd reported first quarter profit that exceeded analysts’ estimates after adding a record number of users by cutting call rates.
Net income rose 34% to Rs2,030 crore for the June quarter from Rs1,510 crore a year earlier, New Delhi-based Bharti said on Thursday.
Profit exceeded the Rs1,940 crore median estimate of seven analysts surveyed by Bloomberg. Sales in the first quarter climbed 44% to Rs8,480 crore.
Bharti, chaired by Sunil Mittal, gained 7.5 million users in the quarter, almost 50% more than nearest rival Reliance Communications Ltd, as it added services. The firm is cutting rates and gaining customers in rural areas at the expense of profitability, and is seeking growth overseas.
“Bharti’s results are good. Operationally, it seems decent, though we are a bit concerned about the margins,” said Poonam Nishal, a Mumbai-based analyst at ICICI Securities Ltd. Shares of Bharti fell 2.21% to Rs797.95 each on the Bombay Stock Exchange.
Bharti’s net income margin dropped 23.9% in the first quarter, from 25.6% a year earlier, as increasing competition forced the operator to reduce call rates.
Competition is forcing Bharti to lower tariffs, managing director Akhil Gupta said on CNBC-TV18 channel.
Profitability is “not under pressure” because the company benefits from economies of scale, he said.
Bharti, which is about 31% owned by Singapore Telecommunications Ltd, said on Thursday it had 71.7 million customers at the end of June. Reliance had 50 million users.
“The competition in the market is so intense that tariff has to come down,” Nishna Biyani, an analyst at Prabhudas Lilladher Pvt. Ltd in Mumbai, said. “If that elasticity is not matched by an increase in minutes of use, then margins will be affected.” He rates Bharti “buy”.
Bharti in May ended merger talks with MTN Group Ltd, Africa’s largest wireless carrier, after failing to overcome differences over ownership and management. Gupta declined to comment on Thursday on the possibility of resuming negotiations.
MTN and Reliance agreed last week to scrap exclusive talks, which they began after Bharti exited, citing legal and regulatory issues.
MTN has approached Bharti to revive merger talks if its ongoing discussions with Reliance Communications fail, The Economic Times newspaper reported on 15 July, citing an unidentified person. MTN refuted the report, Dow Jones reported the same day.
“There are synergies,” Gupta told CNBC-TV18. He said it was up to MTN to decide on any further talks.
Separately, Idea Cellular Ltd, which bought control of smaller rival Spice Communications Ltd to gain subscribers, reported first quarter profit declined 15%.
Net profit fell to Rs2,630 crore in the three months to June, from Rs3,090 crore a year earlier. Sales climbed 47% to Rs2,180 billion. Shares of Idea, controlled by billionaire Kumar Mangalam Birla, fell 3.84% to Rs87.65 on the Bombay Stock Exchange.
A Mint staff writer also contributed to this story.
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First Published: Fri, Jul 25 2008. 12 32 AM IST