Bharti Airtel Ltd’s reported revenue for the December quarter was broadly in line with consensus estimates. Revenue fell by around 1% to Rs9,772 crore sequentially, akin to the trend in the September quarter. But what’s surprising is that the company’s performance on the revenue front was significantly different from that of competitor Idea Cellular Ltd. Idea’s revenue grew by 5.9% to Rs5,784 crore. In the preceding two quarters, revenue of the two companies moved in similar fashion.
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According to analysts, one of the main reasons for this was that Idea was quicker to cut tariffs and move to per-second billing plans. This resulted in increased usage by its customers. Average minutes of use by its customers rose by 3.7% sequentially last quarter, which partly offset the 7.8% drop in average realized tariff owing to the price cuts. For Bharti, too, average realized tariff fell by 7.8% quarter-on-quarter.
But average minutes of use fell by around 1%, leading to lower revenue. Another reason for the impact on both minutes of usage and revenue was the ban on sale of pre-paid cards in Jammu and Kashmir (J&K), where Bharti is a large player. Idea, on the other hand, has only recently started operations in J&K and, hence, would have been impacted less last quarter.
According to an analyst with a domestic brokerage, there is a major structural difference between the two companies, which may cause continued divergence in their performance in the next few quarters. Bharti has had a pan-India presence for some time now, while Idea is a relatively new player in eight circles. As a result, Bharti is defending share in almost all circles from new players, while Idea is doing that only in the 13 circles where it’s been around for a long time.
In the remaining eight circles it’s present in, its revenue growth is likely to be higher given a relatively low base. While the results of the December quarter support this theory, it remains to be seen if it holds true in the coming quarters as well.
Bharti underperformed in terms of margins as well. Idea’s Ebitda (earnings before interest, tax depreciation and amortization) margins fell by 140 basis points, while Bharti’s fell by 200 basis points last quarter.
One basis point is one hundredth of a percentage point.
The total minutes carried on Bharti’s mobile network rose by 6.7%, and one would have imagined that the benefits of scale would have led to some containment of the margin pressure.
On the whole, Bharti’s results reflect the intense competition in the telecom industry and are no big surprise. Idea, having managed to buck the trend to some extent, should see marginal earnings upgrades.
Graphics by Yogesh Kumar/Mint
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