New Delhi: India’s largest mobile phone company by market share, Bharti Airtel Ltd, said on Wednesday that full-year net profit rose by more than a quarter and rewarded shareholders with its first-ever dividend. The company also announced a two-for-one stock split.
For the fiscal year ended 31 March, the Sunil Mittal-promoted firm posted a net profit of Rs8,470 crore, an increase of 26% over the previous year, on a 37% rise in revenue to Rs36,962 crore.
The company, which plans to invest about $3 billion (Rs15,060 crore) this year on expansion, said net profit in the three months ended 31 March rose 21% to Rs2,239 crore and revenue jumped 26% to Rs9,820 crore.
Need to expand: Bharti Airtel’s Sunil Mittal says there is plenty of potential to be tapped in rural markets. Harikrishna Katragadda / Mint
Bharti Airtel, which has never paid a dividend in the past when it concentrated on expanding its network reach, rewarded its investors for their “patience” with a 20% payout—Rs2 on a share with a Rs10 face value—for the year. It said it would split each stock into two with a face value of Rs5 apiece to make its shares more affordable.
“The main reason for the split is to encourage more and more retail investors to invest and participate in the company. We had heard many complaints that the stock price was too high for the average retail investor,” said Akhil Gupta, joint managing director of Bharti Airtel.
Investors greeted the announcement by driving shares of Bharti Airtel up Rs23.60, or 3.25%, to Rs749.30 at the close of trading on the Bombay Stock Exchange on a day when the exchange’s benchmark Sensex gained 3.65% to 11,403.25 points.
Robust subscriber additions helped Bharti Airtel, which has a market share of almost a quarter of subscribers, boost revenue and fend off competition from rivals with aggressive expansion plans, who are cutting call rates to grab market share.
The company, which has avoided steep cuts in call rates, added a record 8.3 million subscribers in the quarter, taking its customer base to 93.92 million at the end of March, ahead of Reliance Communications Ltd’s (RCom) 72.6 million. Bharti Airtel’s customer base rose by more than half in the year.
India ended the 2009 fiscal year with 391.76 million wireless users, making it the second largest mobile phone market in the world, behind only China. Despite the rapid rate of growth and the volume of connections, the country’s phone penetration is less than four out of 10, leaving vast room for growth.
Bharti’s Ebitda (earnings before interest, taxes, depreciation and amortization) margin was 40.7% in the March quarter. Ebitda is a key measure of operational profitability.
Still, the company’s full-year profit and revenue fell short of some analysts’ expectations. The firm had been expected to post a net profit increase of 27% to Rs8,508 crore, on a 38% rise in revenue to Rs37,332.75 crore, according to the average estimate of six brokerage analysts polled by Mint.
Bharti Airtel’s average revenue per user (Arpu) per month declined from Rs324 reported in the quarter ended 31 December to Rs305 in the fourth quarter. Its Arpu has fallen 15% from Rs357 reported at the end of the 2008 fiscal year. Average minutes of usage per subscriber dropped to 485 at the end of March, from 507 minutes a year earlier.
“We are still continuing to take free minutes out in order to increase revenue as our focus now is more on revenue market share,” Manoj Kohli, president and chief executive officer (CEO) of Bharti Airtel, said. “Increased competition is also having an effect on the numbers.”
In January, RCom launched mobile phone services using the global system for mobile (GSM) technology, a platform that Bharti Airtel uses, at very competitive rates. RCom is primarily a CDMA (code division multiple access) operator.
“The competition is eating into the volumes of the firm. But this is not having any impact on the revenues of the firm,” said a research analyst at a Mumbai-based brokerage, who didn’t want to be named because he isn’t authorized to speak to the media.
In a conference call with analysts, chairman Mittal said that “while intensity of competition had risen, there was plenty of potential in the yet untapped markets, including the rural markets”, the analyst said.
Managing director Gupta said Bharti Airtel planned capital expenditure of around $2 billion to increase the reach of its network and $1 billion to expand its units Bharti Infratel Ltd and Indus Towers Ltd that operate telecom towers. The $3 billion of spending is down 14% from the sum earmarked for expansion last year.
“This will be an investment and capability-building year for us,” Sanjay Kapoor, deputy CEO of Bharti Airtel, said.
Some analysts said the company could have avoided paying a dividend and instead used the money to lower its debt. “While the split does increase liquidity, I am not too happy with the announcement for dividend. Straight away, around Rs400 crore leaves the company’s books. The company still has a good amount of debt on its books and this cash may have gone a long way in bringing down that debt,” said Nishna Biyani, an analyst at Prabhudas Lilladher Pvt. Ltd.
The company’s return on equity declined to 32% in the fiscal year to March from 38% in the previous year, indicating growth may slow, he added.
On Thursday, RCom is expected to post an 8% decline in net profit to Rs1,407 crore in the three months ended 31 March, according to the Mint poll of analysts.