Bharti net doubles, but costs also soar

Bharti net doubles, but costs also soar
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First Published: Fri, Jul 27 2007. 08 56 AM IST
Updated: Fri, Jul 27 2007. 08 56 AM IST
India’s largest mobile phone company Bharti Airtel Ltd doubled its net profits during the first quarter ended June thanks to financial income driven by currency gains that helped offset higher expenses.
Revenues at Bharti, which is also India’s third-most valuable listed company in terms of market capitalization, rose 53% to Rs5,904.60 crore. They were up 9.5% from the quarter ended March.
Net profit surged 100% year-on-year to Rs1,511.6 crore, partly driven by interest income, which the company senior management traced to foreign currency gains, of Rs500 crore. The comparable interest inflow in the year-ago quarter was Rs75 crore. Other sources of financial income, too, were up more than three times to Rs80 crore in the April-June period versus Rs25 crore in the same quarter last year.
The quarter’s net profits, which increased by Rs158 crore, or 11.7%, compared to the March quarter, were also boosted by the Rs256 crore jump in its interest and other income.
But the growth in operating expenses, including selling and administrative expenses, network operation expenses and regulatory charges, rose almost equally fast: 50% year-on-year. As a result, operating profits, representative of earnings from its business activities and not finance and non-core incomes, increased by 63% which, while solid, represent the slowest expansion in five quarters. Sequentially, the operating profits, which Bharti Airtel defines as earnings before interest, other income and tax, but includes depreciation, grew at 7.75%, the slowest in eight quarters.
Investors punished the stock with shares falling 2.3%, or Rs21.55 a share, to Rs925.25 at close of trading on Thursday on Bombay Stock Exchange.
“The company has benefited from the 6.5% appreciation in the rupee during the quarter,” said Nishna Biyani, research associate with Mumbai-based broker Prabhudas Lilladher Pvt. Ltd. Though the company has shown nearly Rs240 crore of “derivative and exchange fluctuation” gains associated with the strengthening of the rupee, Biyani said it is difficult to forecast the impact in the quarters ahead as the firm does not disclose its forex assets and liabilities.
Akhil Gupta, joint managing director of Bharti Airtel, attributed the increase in network management expenses to an increase in proportion of Airtel-to-Airtel calls. “Because of this, the access charges (paid to other network operators for completing a call) has gone down but the network expenses have also gone up,” he said on an analyst briefing after announcing the results. The phone firm has also added 3,100 route km to its optic fibre backbone, taking the total network to 43,658 km.
In the quarter, Bharti also put up 6,500 new cell sites, up to nearly 45,000. The company, which has a target of $3.3-3.5 billion to be spent on expanding its networks and infrastructure this fiscal year, spent $900 million during the first three months.
Analysts said the 21.4% sequential rise in its selling, general and administrative expenses to Rs927 crore during the quarter was caused by aggressive marketing for its enterprise segment. “(The company) spent extensively on mass media advertisement for this segment,” said Poonam Nishal, telecom analyst with the Mumbai-based broker ICICI Securities Ltd.
“While this has impacted the segmental margins, the company has reported to have received impressive response to the campaign with the number of total enterprise customers increasing to 1,000.”
Of the four business divisions of Bharti Airtel—mobile, landline and broadband, enterprise and carrier—cellular services continued to grow at the fastest rate, clocking an increase of 10.7% in revenues over the previous quarter to Rs4,697 crore. At 71%, it is the largest contributor to company sales.
Employees at the division increased by 8% to nearly 7,600 during the quarter as the company hired more customer-facing staff.
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First Published: Fri, Jul 27 2007. 08 56 AM IST