New Delhi: Bharti Airtel Ltd reported a fall in net profit of 32% to Rs1,682 crore for the three months ended 30 June over the same quarter last year, but the financials of India’s largest telco reflected three key trends that will likely drive the company’s growth and influence its performance in the future: Africa; the rise of data; and declining voice revenue per user in India.
The Rs216 crore decline in net profit is because of an increase of Rs104 crore in spectrum usage charges and a Rs421 crore loss arising from foreign exchange fluctuations and derivatives. The company had gained Rs279 crore from similar fluctuations in the year ago, said Sanjay Kapoor, chief executive officer (CEO), India and South Asia, Bharti Airtel.
The telco’s consolidated revenue (including Airtel Africa for 23 days) for the quarter was Rs12,231 crore, a growth of 17.4% from the year earlier. Revenue from South Asia, including India, was Rs11,273 crore, up 8.2%.
Bharti acquired the African assets of Kuwait-based Zain for an enterprise value of $10.7 billion (Rs49,755 crore today) in the quarter. It also paid Rs15,610 crore for spectrum to offer 3G, or third-generation, high-speed mobile services (in 13 circles) and BWA, or broadband wireless access, services (in four circles).
Capital expenditure in the quarter was Rs1,836 crore, largely because of delays in security clearances for equipment imports. It earlier indicated its capital expenditure for the year would be $3.2 billion, including $800 million for Airtel Africa.
Bharti’s net debt to equity ratio stood at 1.38:1, a relatively low number for a telco, and an indication of the firm’s financial health as well as its ability to cover its debt; and its net debt to operating profit ratio at 2.87:1.
Operating profit (earnings before interest, taxes, depreciation, and amortization, or Ebitda) margin, a key gauge of profitability, was 36.9% in April-June, compared with 41.3% a year ago.
The telco reported earnings as per IFRS (International Financial Reporting Standards) in advance of rules that take effect next year.
Airtel Africa’s revenue for 23 days was Rs958.3 crore on a loss of Rs69.7 crore.
Bharti is well on its way to integrating its Africa assets and will rebrand the operations there in October, said Manoj Kohli, CEO (international operations). It will finalize technology and network partners by September, he said.
“We have finalized five firms for IT (outsourcing) in Africa,” Kohli said. “We are making plans and by next month we should be able to finalize. In India, IBM India Pvt. Ltd (which manages Bharti’s IT), has done a great job, but for Africa we are still in the final stages of evaluation of all the partners.”
The acquisition will hold the key to the future earnings.
“In the next three to five years, Bharti could very well turn around Zain, bringing some radical changes to the balance sheet,” said a Mumbai-based analyst with a multinational brokerage firm on condition of anonymity as he is not authorized to speak to the media. “Zain could start paying back. Another revenue stream with a lot of growth potential is expected from 3G services and things like mobile commerce.”
Bharti Airtel also said it would acquire Telecom Seychelles Ltd for $62 million from Bharti Enterprises Ltd.
A tariff war all through 2009-10 eroded the profitability of telcos, but Kapoor said the effects of that were “receding”.
“But bleeding could continue, as when the time comes for consolidation, the new operators could get desperate and highly disruptive,” said the analyst cited above. “They could hold the incumbent operators to ransom. For now, there is some amount of sanity in the market.”
Bharti saw its minutes of usage rise to 480 from 468 in the previous quarter. Interestingly, Bharti’s average revenue per user (Arpu) and average revenue per minute fell 23% to Rs215 and Rs0.45 from the previous year’s Rs278 and Rs0.58, respectively.
The telco also saw its market share fall from 24% in the same quarter last year to 21.5%, while that of additions dropped from 23.8% to 17.6%.
Bharti is the largest operator in India, which has 14 national service providers that add 15-20 million mobile connections every month, making the country the world’s fastest growing and second largest telecom market by subscribers.
The firm has also seen a rise in data usage and is pegging future growth on its telemedia arm that includes broadband and DTH (direct-to-home) TV services. “Non-voice revenue has risen 25% over a year,” Kapoor said. “Telemedia Arpu has also risen to Rs961 from Rs937 in the previous quarter. This shows that data is coming of age in our country.”
But most analysts prefer to remain neutral on the firm, at least over the long term.