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Business News/ Market / Mark-to-market/  Airtel springs a surprise with stellar March quarter results
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Airtel springs a surprise with stellar March quarter results

Profits grew steadily in almost all of Bharti Airtel's business segments; even the troubled Africa business reported steady revenue

Photo: AFPPremium
Photo: AFP

It’s fairly unusual for telecom companies to beat consensus earnings estimates these days, given the hyper competition in the industry. And even if somehow earnings meet or exceed expectations, slowing volume growth or falling price realizations would invariably temper investor sentiment.

In this backdrop, Bharti Airtel Ltd’s results for the quarter ended March are incredible. Its earnings before interest, taxes, depreciation and amortization (Ebitda) rose 14.3% year-on-year to 9,188.3 crore. Most analysts had expected Ebitda to grow by around 7.5%, slightly lower than the 8.3% growth in the December quarter.

What’s more, profits grew steadily in almost all of Bharti Airtel’s business segments. Even the troubled Africa business reported steady revenue and an improvement in margins.

More importantly, in the India mobile business, Ebitda rose 13% year-on-year on the back of rising volume in the voice business. As the chart shows, voice traffic carried on the company’s network rose by 10.84% last quarter, the first time the company has reported double-digit growth in at least the last 12 quarters.

The increase in voice volume growth suggests competitive pressures may be easing. Analysts at Kotak Institutional Equities had pointed out in a December-quarter results review note that “the most aggressive challenger in the voice market, Telenor, reported a q-o-q voice volume decline even as all three incumbents’ volumes grew sequentially".

Growth in data volume has been steady at around 70% in the past three quarters; although because of falling price realization, the growth in data revenue, at 44.5%, was lower than the 50-60% in the preceding two quarters. According to an analyst with a local brokerage, investors are likely to shrug off the drop in data revenue growth, since most of it was expected, and also because the results were stellar overall.

Realizations fell in the voice segment, too; although the jump in volume more than made up. Better economies of scale in the mobile business resulted in better profit margins, both on a sequential and a year-on-year basis.

Bharti Airtel shares have risen by nearly 30% from its lows in end-January. Apart from better December quarter results vis-a-vis Idea Cellular Ltd, investors have also been enthused about the sale of tower assets in Africa and the company’s spectrum acquisition strategy. Thanks to its recent spectrum purchases, Bharti now has the best coverage for 3G and 4G services. According to analysts, this can result in better growth in the data segment. Bharti had overtaken Idea in terms of percentage growth rates in the data segment in the December quarter, despite a much higher base.

Another reason the stock has done well is that the company’s promoters have been buying shares from the open market recently. Notwithstanding the recent rally, investors are likely to react positively to the March quarter results. In addition to beating earnings estimates, Bharti has also announced a buyback through the tender offer route, which is essentially a tax-efficient manner to return cash to shareholders. After the government’s recent decision to tax dividend income above a certain threshold, companies are resorting to buybacks to help promoters and large shareholders avoid additional dividend tax.

Of course, despite all of these positives, the excitement will be capped because of the niggling thought about the entry of Reliance Jio Infocomm Ltd. As things stand, the delay in Jio’s launch has given incumbents breathing space; but realizations can come under further pressure when the launch eventually happens.

The writer does not have positions in the companies discussed here.

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Published: 28 Apr 2016, 08:19 AM IST
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