New Delhi: In a quarter that saw India becoming the second-largest market for phone customers in the world, behind China, a combative Bharti Airtel Ltd, the country’s biggest mobile phone services firm by sales, has increased its market share by rapidly expanding its network beyond cities and town as also dropping call rates.
The New Delhi-headed firm beat analyst forecasts delivering a 37% increase in profits for the March quarter, the last of the previous financial year for Bharti Airtel, to Rs1,853 crore on revenues of Rs7,819 crore, which rose 45% from the year-ago period. For fiscal 2008, profits were 57% higher at Rs6,701 crore from the year before and revenues up 46% at Rs27,025 crore.
Mobile phone companies added a record 10.2 million phone users in March, taking the total to 261 million, overtaking the US market’s estimated 258 million, according to data released by India’s telecom regulator on Friday.
But the fast-growing operations came at the cost of profit growth. Bharti Airtel’s Ebitda —short for earnings before interest, taxes, depreciation and amortization; a measure of operating profit—margins for the quarter fell by 3.6 percentage points to 35.5% compared with the same quarter of fiscal 2007.
The company, chaired by billionaire Sunil Mittal, attributed this fall to an increase in expenses on renting towers it uses after the transfer of over 29,000 towers in its network to Indus Towers Ltd, a tower company it owns together with Vodafone Essar Ltd and Idea Cellular Ltd. “We had said earlier that Ebitda margins would come down because of the operating expenditure incurred,” said Manoj Kohli president and chief executive. “Lower call rates for local calls and marketing expenses also contributed to the Ebitda impact.”
During the quarter, Airtel introduced call rates for all local calls at Re1 a minute, and added around 6.8 million customers, taking its user base beyond 62 million. The firm, which spent nearly $3.5 billion on buying new equipment and expanding phone networks last year, will invest around $2.5 billion this year.
Telecom analyst Yogesh Kirve of Anand Rathi Securities predicted the company’s Ebitda could see some more impact in the next quarter, “but it will be more or less between 34% and 35%.” One in three of Bharti Airtel’s new customers come from villages, marked by low average monthly billings. In future, such customers will account for more than half of the firm’s new subscribers.
Himanshu Shah of Religare Securities Ltd said while average revenue per minute could be going down because of falling call rates, it is helping companies such as Bharti Airtel boost call-minute volumes.
For the March quarter, total minutes of usage at Bharti Airtel stood at 105 billion, up 19% from the December quarter. Anand Rathi’s Kirve said the 7% growth in monthly average usage was unexpected.
The company reported a forex related loss of nearly Rs80 crore for the March quarter. In an interview with business news channel CNBC TV18, the transcript of which was published online at its finance portal, www.moneycontrol.com, Bharti Airtel chief financial officer Sarvjit Dhillon, said the firm had lost Rs123 crore over foreign currency exchange fluctuations and derivatives that are mandated to be marked to market under US accounting rules.
Idea Cellular, India’s sixth biggest mobile phone firm, reported a 53% rise in revenues on Thursday for the year ended March to Rs6,737 crore, up from Rs4,387 crore the previous year. Net profits more than doubled to Rs1,042.30 crore.
Shares of Bharti Airtel shot up 9.4% to close at Rs922.40 each on Friday when the Bombay Stock Exchange’s Sensex rose 2.42%. The jump was in part driven by a report in the Financial Times that Bharti Airtel would bid for MTN Group, Africa’s largest phone firm with a market capitalization of $33 billion and a franchise extending from South Africa to Iran to Nigeria. Bharti Airtel is valued at $43.75 billion on the stock markets.
Both companies denied any specific negotiations. But, Bharti Airtel, which has a presence in Sri Lanka and the Jersey Islands, said it does plan to expand into new markets through acquisitions. “We believe that we are ready to expand internationally, we would be open to acquiring a company depending on its fit for us, valuation and other things,” said Akhil Gupta, joint managing director of the Bharti Group.
In the year ahead, Bharti Airtel will have to compete with new operators who will launch their services later this year, and could be forced to resort to aggressive pricing in a bid to attract new and retain existing customers.
With average monthly additions in the last quarter clipping at over nine million customers, India is readying to accommodate new telecom aspirants such as Datacom Solutions Pvt. Ltd and Unitech Ltd, which have been awarded phone licences and are awaiting radio spectrum to start offering their phone services.
Bharti Airtel said it was ready for new competition. “There will be a consolidation within few years of new network roll-outs, as of now, our closest competitor is around 17 million subscribers away from us,” said Kohli.
Another challenge for the company in 2009 will be the likely introduction of number portability which will allow customers to shift their account from one phone firm to another but still retain their old phone number.