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Bharti Airtel fails to impress

Meeting analysts’ Ebitda estimates of Rs.25,180 crore for FY13 looks an uphill task for the firm
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First Published: Wed, Nov 07 2012. 05 32 PM IST
Bharti will have to grow profit by 5.5% sequentially in each of the next two quarters to achieve analysts’ target. Photo: Pradeep Gaur/Mint
Bharti will have to grow profit by 5.5% sequentially in each of the next two quarters to achieve analysts’ target. Photo: Pradeep Gaur/Mint
Updated: Wed, Nov 07 2012. 10 16 PM IST
Bharti Airtel Ltd’s results for the September quarter weren’t disastrous like they were in the June quarter, but they weren’t exciting either. The company reported a surprise 4.8% sequential growth in revenue in the September quarter to Rs.20,273 crore. But this includes one-off income of Rs.586 crore, adjusted for which growth falls to 1.7%. According to the company, about Rs.250 crore of this flew through to its earnings before interest, tax, depreciation and amortization (Ebitda)—adjusting for which Ebitda grew 4.3% to Rs.6,100.8 crore.
Without doubt, these growth rates are decent, especially compared with the 6.2% drop in Ebitda in the June quarter. Even so, meeting consensus Ebitda estimates for fiscal 2013 now looks like an uphill task. According to Bloomberg, analysts estimate a consolidated Ebitda of Rs.25,180 crore for the year. Bharti will have to grow profit by 5.5% sequentially in each of the next two quarters to achieve this target. The company hasn’t grown at this rate for the past few years.
Additionally, capital expenditure has picked up, and is affecting analysts’ estimates of free cash flow generation. In the past two quarters, capex averaged Rs.3,815 crore, compared with the Rs.2,252 crore in the March and December quarters. And, as a result, free cash flow fell to an average of Rs.2,284 crore in the past two quarters, compared with Rs.3,844 crore in the March and December quarters. An analyst with a domestic brokerage points out that it is difficult to digest the increase in capex, especially when the core India wireless business is sluggish.
The India and South Asia mobile business witnessed a 1.4% decline in revenue and a 1.3% decline in Ebitda. Most analysts had already factored in a drop in revenue on the back of a 2% decline in voice minutes carried on the India wireless network. While it seems commendable that Bharti maintained margins despite the sluggishness in volumes, it should also be noted that Idea Cellular Ltd did much better in containing costs and reported growth in margins. Idea managed to cut its selling and distribution costs by 20% quarter-on-quarter, while in Bharti’s case they fell 4.7%. Since 1 August this year, telecom firms have reduced subscriber acquisition costs.
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However, tariffs remain under pressure because of discounting by telecom operators through special vouchers as well as lower tariffs for new pre-paid subscribers. Voice revenue per minute continued to inch lower, albeit at a lower rate of 0.8%. Bharti said on a call with analysts that the current pricing structure in both voice as well as 2G data services is unreasonable. However, given the market share losses it suffered last year when it raised tariffs, the company can be expected to go slow in initiating a tariff hike once again.
The African business bounced back after a muted performance in the June quarter. In rupee terms, the business grew 5.1%, while margins rose, leading to an 8.4% rise in Ebitda. Among other business segments, the telemedia business reported a mere 1% increase in revenue, but a meaningful 200 basis points improvement in the Ebitda margin. One basis point is one-hundredth of a percentage point.
The B2B business segment, Airtel Business, reported a surprise 17% jump in revenue, sequentially. And the tower infrastructure business grew revenue and profit by 6% and 9%, respectively. Bharti’s shares have fallen by over 20% year-till-date and can be expected to continue drifting lower, unless tariffs rise and some of the uncertainty on the regulatory front clears.
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First Published: Wed, Nov 07 2012. 05 32 PM IST
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