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Bharti losing its premium

Bharti losing its premium
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First Published: Wed, Aug 03 2011. 10 35 PM IST
Updated: Wed, Aug 03 2011. 10 35 PM IST
Bharti Airtel Ltd has been underperforming rival wireless operator Idea Cellular Ltd in its Indian mobile business for some time now, and the June quarter was no different.
Late last week, Idea reported a 6.5% increase in the total amount of traffic carried on its network compared with that in the March quarter. Bharti reported a lower 4.6% growth in volumes for its Indian mobile business, which is the fourth straight quarter in which its growth rates have been lower. On a year-on-year basis, Bharti’s volume growth stood at 16%, exactly half that of Idea’s volume growth of 32%.
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While Idea reported a 120 basis points gain in operating profit margins compared with the three months ended March (the actual gain being over 200 basis points after adjusting for one-off gains), margins of Bharti’s mobile business improved by 60 basis points sequentially. One basis point is one-hundredth of a percentage point.
Bharti’s results were marginally below expectations, with respect to volume growth and higher losses on account of forex fluctuations, according to an analyst with a domestic institutional brokerage.
Net finance costs rose by 52%, largely because the debt related to high-speed third-generation spectrum financing has now been fully capitalized, but also because forex losses jumped last quarter. However, reported profit was not much lower than expected to warrant a change in analysts’ earnings estimates.
In fact, analysts would be raising earnings estimates because of the company’s recent tariff hikes, in case they haven’t done so already. About two weeks ago, the company announced that it had raised tariffs in six circles from 1 paisa per second to 1.2 paise. Since then, the company’s share price has risen by 8%, in anticipation of earnings upgrades.
While it’s still early to say how the recent tariff hikes will affect volumes and profit, analysts will undoubtedly raise estimates meaningfully. This is because competition has weakened considerably and the consensus view is that the price hikes are likely to stay.
It’s interesting to note that Idea’s share price has risen by 19% during the same time, aided by its better June quarter results. Bharti’s recent financial underperformance seems to be affecting its premium valuations.
Graphic by Yogesh Kumar/Mint
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First Published: Wed, Aug 03 2011. 10 35 PM IST