Bharti Airtel Ltd’s consolidated net profits in the March quarter rose 11.4% compared with the December quarter. Revenue growth has been more muted, growing 9.8% over the previous quarter.
In spite of the good results, communications and information technology minister Dayanidhi Maran’s remarks about a further reduction in mobile tariffs spooked investors and the stock lost around 4% on Friday, 27 April.
Mobile services, which accounted for 69% of total revenues, showed no signs of deceleration, with revenues growing at 12.9% over the previous quarter. Of course, the number of minutes on the network increased at a much higher rate—19% more than in the December quarter—but that was partly offset by a 5% decline in average revenue per user (Arpu). Volumes were boosted not only by a 5% rise in Bharti’s mobile customer base, but also because average minutes of use per user increased by 2%. The net result: Operating margins for the mobile business improved by 1.5 percentage points over the last quarter. The mobile market share has increased to 22.9% from 21.8% in December.
Simply put, the tried and tested formula of lower Arpus being offset by higher volumes continues to deliver results for Bharti.
Bharti’s other-than-mobile business, however, hasn’t performed as well, with operating profits in the March quarter dipping below the level reached in the December quarter.
To be specific, it’s the domestic and international long-distance operations that have seen a drop in operating profits.
Other segments, such as broadband operations and the corporate side of enterprise services, have all seen higher operating profits than in the previous quarter. Arpus, too, fell in the non-mobile business.
But while the long-distance segment dragged down operating margins for the non-mobile business, the company’s overall operating margins continued to improve, moving up to an enviable 41.5%.
During the quarter, Bharti was able to lower operating expenses to 31.7% of revenues, compared with 33.1% in the previous quarter. With economies of scale kicking in, the company has been consistently successful in bringing down operating expenses as a percentage of revenues.
Going forward, the lower-Arpu-higher-volumes strategy will continue, with savings in cost and capital expenditure coming in from the infrastructure-sharing agreement with Vodafone. The company’s plan to hive off its tower infrastructure into a separate subsidiary should also help free some cash. Rupee appreciation, too, would help the company, particularly for its capital expenditure plans.
At Rs820, the stock trades at a multiple of around 26 times its 2007-08 earnings, which is not cheap, but then earnings growth will easily be well above that multiple over the next two years.