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Bharti fails to please investors

Bharti fails to please investors
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First Published: Sat, Apr 28 2007. 12 17 AM IST

Updated: Sat, Apr 28 2007. 12 17 AM IST
New Delhi: Bharti Airtel Ltd, India’s biggest mobile-phone services company, nearly doubled its net profit in the three months to March, but that didn’t impress investors who traded the stock down by 4.6%, the most in 11 months, because profit growth for the quarter was lower than that in the previous quarter. The company’s net profit for the quarter ended March was Rs1,353. The Bombay Stock Exchange’s benchmark index closed 2.25% down on Friday.
On Friday evening, India’s Foreign Investment Promotion Board cleared Vodafone Group Plc.’s acquisition of Hutchison Essar Ltd, India’s fourth-largest mobile telephony company, a move that presents Bharti Airtel with a formidable rival.
Despite slowing, but still impressive, profit growth, Bharti Airtel—the third ranked firm in India by market capitalization—has climbed regional telecom stock rankings, overtaking partner Singapore Telecommunications Ltd to become the most-valued telecom stock in South and Southeast Asia. The New Delhi-based company now ranks third among peers in Asia behind China Mobile Ltd and Japan’s NTT DoCoMo Inc.; and No. 14 in a global list of phone firms led by AT&T Inc., Vodafone Group Plc. and Telefonica SA. (Ranking list)
Bharti’s revenue for the quarter, the last in its financial year to March, grew 58% to Rs5,393 crore, lagging the third quarter increase of 62%. The company’s full-year revenue in 2006-07 grew to Rs18,520 crore, a year-on-year expansion of 59%, while the net profit was up 89% to Rs2,257 crore.
“The top line has slightly under-performed the market expectations, but the profit growth has been an outperformer,” said Harith Shah, telecom analyst at Mumbai brokerage firm Angel Broking.
Analysts interpreted the growth in the company’s bottom line, which has outpaced the revenue growth by almost twice in the last three quarters, as a reflection of the better network utilization as the company’s expenses are spread over a larger subscriber pool. Bharti’s revenues have grown by 24% between June 2006 and March 2007 and its net profit by 45% (Bharti Airtel’s Growth Since last year). “When more and more subscribers are added on to an already existing network, the running costs per subscriber comes down and that has led to the current strong earnings expansion,” Sheriar Irani, head of research at broker ASK Raymond James in Mumbai, said.
Just about one in six Indians owns a cellphone, the world’s fastest-growing telecom market, making it a nation with big potential for growth in demand for mobile-phone services. In comparison, 36% of China’s population has a cellphone.
Bharti Airtel continued to add subscribers at a rapid pace, with its wireless customers totalling 37.14 million as of 31 March, 90% more than in fiscal 2006. The company increased its share of the cellular phone-services market from 20.4% last year to 22.9%.
Company chairman and managing director Sunil Bharti Mittal said he expected the growth to continue. “This year has been a year of accelerated growth and market leadership and we believe that this momentum can be sustained,” he said here. “We have achieved a scale that will insure us from shocks and help us grow.”
Mittal said Bharti Airtel will invest around $3.5 billion (Rs14,350 crore) to expand the infrastructure of the company in India and Sri Lanka, compared with $2.1 billion last year. It recently won a licence to offer mobile services in the island nation.
“About 70% of this will be in wireless and the remaining in our fixed and content business,” he said, adding that the company will roll-out the Sri Lanka network this fiscal year.
“We are entering as the fifth operator there, but the market situation is that just one operator there has 60% of the market, with the remaining split among three small operators... We believe we can benefit from our high-procurement volumes and low-cost operations model,” Mittal said.
On capital expenditure, he said that nearly 30,000 towers will be put up during the financial year, against the 18,000 added last year.
Bharti Airtel is the biggest wireless operator with around 40,000 cell-sites, with rivals state-owned Bharat Sanchar Nigam Ltd and Hutchison Essar Ltd, which is India’s fourth-ranked operator by customers, trailing with around 25,000 towers each.
Mittal also said he expects between 70% and 80% of the company’s towers to be shared with Hutchison Essar. The company currently shares just around 10,000 shares with its peers. He also clarified that the 30,000 towers target is irrespective of any future network-sharing agreements.
The operator, Mittal said, will bid aggressively for third- generation (3G, a cellular technology that enables faster transfer of data) and wireless broadband licences, for which Indian companies will have to compete with international operators.
“As of now, it is too early to say...but we will be looking at all the possibilities, including one of deploying a mixed network with both 3G and wireless broadband,” he said. The capital outlay of $3.5 billion does not include plans for 3G or?wireless?broadband?services.
The company expects a positive impact if the rupee maintains its current high levels against the dollar as nearly 40% of its network infrastructure expenditure is spent on imports. The rupee has appreciated 7.71% against the US dollar in the last 12 months.
On its planned direct-to-home service, Bharti Airtel said it has made progress on securing consumer-end equipment for the planned launch of its DTH satellite television service towards the end of the financial year.
It will, however, hold only 40% in Bharti Telemedia, its DTH unit, with the balance being held by “another group company”. Bharti Airtel will hold a call option that will enable it to raise its stake to 100% after compensating the other company for any investments it makes.
Bharti Airtel also said its planned Internet-delivered television service will be launched in Delhi and its surrounding areas later this year, with two more cities being added next year. It will also buy out Singapore Telecom’s 49% stake in the landing station for its i2i cable in Chennai for Rs16.4 crore.
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First Published: Sat, Apr 28 2007. 12 17 AM IST
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