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Bharti Airtel posts 72% drop in Q3 net profit

Bharti says December quarter net profit at Rs.284 was hit by increased interest and financing costs
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First Published: Fri, Feb 01 2013. 10 35 AM IST
The drop has been attributed to higher depreciation, amortization, net interest costs, core fluctuation and tax provisions increase. This is the 12th straight quarter of fall, but the biggest so far. Photo: Pradeep Gaur/Mint
The drop has been attributed to higher depreciation, amortization, net interest costs, core fluctuation and tax provisions increase. This is the 12th straight quarter of fall, but the biggest so far. Photo: Pradeep Gaur/Mint
Updated: Sat, Feb 02 2013. 12 44 AM IST
New Delhi: Bharti Airtel Ltd, India’s largest phone company by revenue and subscribers, posted its 12th consecutive quarterly drop in net profit on Friday, hit by increased interest and financing costs as a result of the rupee’s depreciation in the three months ended 31 December.
Net profit tumbled 72% in the three months to December (Q3) to R284 crore from Rs.1,011 crore in the year-ago period. A Bloomberg survey of 29 analysts had forecast a profit of Rs.839 crore for the company.
The profit came on a 9.5% increase in revenue to Rs.20,239 crore, paced by its Indian business, which reported a 70% jump in Internet usage during the quarter and ended 2012 with 5 million 3G subscribers.
Net interest costs of Rs.284 crore and amortization costs of Rs.316 crore contributed to the drop in profit at Bharti Airtel, which also took a hit of Rs.261 crore because of fluctuations in the foreign exchange rate and increased tax burden of Rs.109 crore. Net finance costs, including foreign exchange fluctuations, increased to Rs.1,330 crore in the quarter from Rs.790 crore a year earlier.
The rupee’s 3.9% decline against the dollar in the quarter gone by pushed up interest costs on overseas debt for the telco controlled by billionaire Sunil Mittal.
“There are a lot of one-offs this time around that have left a major impact on the bottomline. If those are removed, then the results are largely flat, which is a great thing for the current environment,” a Mumbai-based telecom analyst with a multinational brokerage firm said on condition of anonymity.
“These are not bad numbers, but going forward, it does not look like the one-offs are going to subside, which poses a problem for investors in the sector,” the analyst said.
Bharti Airtel’s share fell 2.62% to close at Rs.330.50 on Friday on BSE, on a day when the benchmark Sensex lost 0.57% to 19,781.19 points.
The company’s management is optimistic about future prospects given the increase in consolidated revenue and the growth in its Indian operations. Analysts noted operational improvements at Bharti, but said its African business was still a point of concern.
“The quality of customers in India has gone up. The churn is down and VLR (visitor location register) has improved significantly,” said Sanjay Kapoor, outgoing chief executive officer (CEO) for India and South Asia. VLR refers to the measurement of the number of active subscribers in a month.
He was referring to a marginal decline in the total number of subscribers because of stricter subscriber verification norms, which has been welcomed by most telcos because they have taken out deal-seeking subscribers who cost more than the revenue they generate. Last month, Bharti Airtel cut discounts and free minutes of talk time for subscribers.
“There are a lot of leakages in the tariffs. The headline tariff is between 1.2-1.5 paise per second while, in some areas, the realized rate is as low as 28 paise per minute—less than half. This is not sustainable and we are continually working towards bridging the gap,” Kapoor said, adding that the telco would look at further corrections.
He did not rule out increasing the headline rate as the company tries to cope with increasing input costs resulting from factors such as the higher price of diesel that fuels its telecom towers.
Average revenue per user fell 3% year-on-year to Rs.153 (from Rs.157) while realization per minute (RPM) fell 6% to 35.2 paise (from 37.5 paise) over the same period last year. The fall in RPM was attributed to the fall in the total number of subscribers.
Bharti Airtel reported a 21% jump in data usage per customer to 166 megabytes, while average data revenue per user grew 9% to Rs.47.
The company will likely fall marginally short of its $2.8-3 billion (around Rs.14,925-15,990 crore) capital expenditure for the current fiscal.
“We have spent some $440 million in this quarter. That takes us to around $2.5 billion for the year (from $2.8-3 billion),” said chief financial officer Sarvjit Singh Dhillon.
Dhillon said increased ma-intenance costs and network enhancement could result in capital expenditure of around $2.5 billion in the next fiscal.
The company is also likely to revisit plans to sell overseas bonds to help repay some of its debt. Bharti Airtel’s net debt fell to $11.7 billion in the last quarter from $12.7 billion in the same quarter last year.
Profitability is still healthy for the company, although under pressure. Its Ebitda (earnings before interest, tax, depreciation and amortization) margin narrowed to 30.6% in the quarter from 32.2% a year ago.
Other challenges loom for Bharti Airtel and other telecom operators. The government has issued notices to the company to pay a one-time fee for additional spectrum of around Rs.5,200 crore. The government is looking at doing away with roaming charges, which could mean a drop in revenue by as much as 12%.
Bharti Airtel will also have to compulsorily participate in the coming auction for spectrum if it wants to keep its services operational in the lucrative telecom circles of Delhi, Mumbai and Kolkata. The telco’s licences will expire in these circles in November 2014.
“Going ahead, we are positive on the Indian operations and expect tariff to inch up, but there are concerns regarding the African operations which might weigh upon Bharti Airtel’s performance,” Ankita Somani, research analyst (telecom) at Mumbai-based Angel Broking Ltd, wrote in a Friday report. “Elevated costs are likely to exert pressure on Bharti Airtel’s margins in the next couple of quarters.”
Manoj Kohli, CEO of Bharti Airtel’s international operations, said tariffs in Africa had stabilized. In most countries of Africa, the telco is the main challenger if not the leader and is continually adding market share. Kohli admitted that the African business was growing slower than earlier anticipated, but said the peak capital expenditure in the region was behind it.
Bharti Airtel entered Africa by buying Zain’s telecom assets in a deal valued at $11 billion in 2010. Revenues from the Africa business grew 15% to Rs.6,169.4 crore in the quarter from Rs.5,357.7 crore in the year-ago period.
Bloomberg contributed to this story.
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First Published: Fri, Feb 01 2013. 10 35 AM IST