Bharti stays on top, but tough Q4 seen

Bharti stays on top, but tough Q4 seen
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First Published: Fri, Jan 23 2009. 12 37 AM IST

Updated: Fri, Jan 23 2009. 12 37 AM IST
New Delhi: Bharti Airtel Ltd, the country’s largest mobile phone operator, has reported a 25% increase in net profit for the December quarter from a year ago, as it added a record number of customers expanding into villages not covered by phone networks.
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But earnings growth slowed for the sixth consecutive quarter on such expansions, as the firm started the so-called third generation, or data-heavy, services in Sri Lanka and launched its direct-to-home satellite television service in a competitive market. The company also made foreign exchange losses of Rs222 crore in the quarter. Airtel Digital TV is adding some 100,000 customers a month in a market where players, numbering at least five, are making losses.
Idea Cellular Ltd, Bharti’s smaller rival, which also reported results on Thursday, saw an 8.3% year-on-year decline in profit in the three months to 31 December as it expanded to new licensed areas.
At Bharti Airtel, the net profit rose to Rs2,159.30 crore in the December quarter from Rs1,722 crore a year ago, the firm said on Thursday. The profit growth—25% in the quarter gone by—has slipped from 27% and 30%, respectively in the two quarters before this.
Sales rose 38% to Rs9,633 crore, from Rs6,964 crore in the previous year.
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The 8.2 million subscribers added at Bharti Airtel in the third quarter, the firm’s highest ever, pushed down, further, the average revenue per user (Arpu) to Rs324 from Rs331 in the September quarter and Rs350 in the quarter before. Also the minutes each subscriber used fell to 505 a month in the December quarter, from 526 and 534, respectively, in the previous quarters.
The firm now has 88 million customers, giving it, on 31 December, a market share of 24.7%, up from 23.6% a year ago. Its network now covers 400,000 villages across India and 57% of its customers come from areas outside cities.
Bharti’s results were in line with analyst expectations. A Mint poll of six analysts on 15 January had predicted a 38.6% rise in the company’s revenue and a 26% rise in net profit.
“(The results) did not disappoint,” said Nishna Biyani, a telecom analyst at Prabhudas Lilladher Pvt. Ltd. “Though the overall global scenario is bad, the telecom business has not been impacted.”
Significantly, for the first time in nine quarters, the company’s average realizations per minute, or the money it earned per minute, increased by one paisa to 64 paise per minute, according to the calculations of a brokerage firm that declined to be identified. These have been falling steadily since the September 2006 quarter, when it was 97 paise.
In the past few months, telecom operators have given away minutes at discounted prices to add subscribers. This has pushed down average realizations per minute for all mobile operators.
On the other hand, Bharti undertook steps to reduce what Manoj Kohli, chief executive of Bharti Airtel, terms as “irrational minutes in the system”. He expects the company to continue to do this for the next couple of quarters, but declined to say whether this would result in a continuing increase in average realizations per minute.
At the same time, the company has managed to sustain its Ebitda—short for earnings before interest, taxes, depreciation and amortization, a measure of operating profit—margins at 41%, the same as this fiscal year’s second quarter.
Shares of Bharti Airtel, down 19% from the start of this year, rose 6.2% to Rs619.70 on the Bombay Stock Exchange on Thursday, whose benchmark index was almost flat.
Idea in focus
Idea Cellular’s numbers were also better than analyst expectations.
The fifth ranked mobile operator by customers posted a lower-than-expected fall in December quarter net profit to Rs219.45 crore, hurt by its acquisition of smaller mobile services firm Spice Communications and losses in newly launched service areas. Its shares closed marginally lower ahead of the results, which were announced after market hours.
Spice Communications was acquired by Idea Cellular with effect from 16 October. Together they service 38 million subscribers.
Results reported by Idea Cellular included revenues from Spice, in which it has a 40.12% stake, and tower firm Indus Towers Ltd (16% equity). The company also separated results for Mumbai and Bihar, where it has recently launched operations.
Commenting on a 1.5 percentage point rise in Idea Cellular’s Ebitda, excluding Mumbai and Bihar operations, Piyush Choudhary, an analyst at Centrum Broking Pvt. Ltd, said, it “shows that the company is gaining operational strength. Overall margins have dipped 70 basis points, quarter-on- quarter sequentially, but this we think need not be a worry, as new circles take time to gain traction”.
Bruising Q4 ahead?
Analysts interviewed on Thursday, however, predicted the current quarter, the fourth in this fiscal year, would hurt.
Both Arpu and minutes of use are expected to fall in the fourth quarter, as entrants Reliance Communications Ltd (RCom) and Tata Teleservices Ltd crank up their new GSM (short for global system for mobile communications) networks with aggressive pricing plans, said G.V. Giri, a telecom analyst at IIFL Capital, adding that the market has already factored that in.
“It’s what happens after the fourth quarter that’s not known. Nobody expects RCom to cut tariffs for three months and then go back to regular tariffs and lose all the subscribers they’ve added,” he added.
RCom, which announces its results on Friday, has introduced a pricing plan starting at 25 paise a minute on its GSM networks, in an attempt to attract and rapidly grow its customer base.
Graphics by Ahmed Raza Khan / Mint
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First Published: Fri, Jan 23 2009. 12 37 AM IST