Home / Companies / Airtel Q1 net falls 37%, shares tank

New Delhi: Bharti Airtel Ltd, India’s largest telecom services provider by revenue and subscriber base, posted a 37.3% drop in net profit in the June quarter (Q1) on the back of increased costs and competition in Africa, sending its stock tumbling. Profit was way below expectations and marked the company’s 10th consecutive quarterly drop in the measure.

“The second quarter is seasonally the weakest quarter for the industry," said Sanjay Kapoor, chief executive officer (India and South Asia). “Depressed revenues on account of unfavourable regulatory interventions and taxation, coupled with enhanced market participation and planned accelerated investments have impacted mobile profitability."

Net profit dropped to 762 crore in the three months to June from 1,215 crore in the year-ago period. Consolidated revenue grew 14% to 19,350 crore from 16,975 crore on a 31.5% growth in the telco’s Africa business and a 44.2% increase in India mobile data revenue. Net profit lagged behind the 1,220 crore median of 33 analysts’ estimates compiled by Bloomberg.

Things aren’t likely to get too much better anytime soon.

“Currently, it is difficult to see major improvement in Bharti’s domestic business anytime soon," said Ankita Somani, telecom analyst at Angel Broking Ltd. That’s because sharp cuts have had to be made in 3G tariffs to try and drum up business even though record amounts were bid for the licences, and Bharti’s Africa operations are yet to turn profitable.

The fall in net profit in the June quarter in India has been attributed largely to an increase in operational expenditure. Earnings before interest, tax, depreciation and amortization (Ebitda) rose to 5,850 crore from 5,710 crore a year earlier.

“The Ebitda margin, at 30.2%, was depressed due to the adverse regulatory and tax developments in India, enhanced market participation and planned accelerated investments in both India and Africa," Bharti’s earnings statement said. Bharti posted an Ebitda margin of 33.6% for the same quarter last year.

The biggest operational expenditure went towards addition of some 5,000 towers to expand the company’s network in the 1800 megahertz band. Other operational costs include the incremental 3G and 4G sites.

The company also attributed the increased expenditure to Telecom Regulatory Authority of India guidelines around processing fees that restricted the sales of “combo packs" that offered bundled service propositions to augment customer value. Besides this, the increase in service tax to 12.36% from 10.3%, effective 1 April, led to all telecom services becoming dearer by nearly 2%, the company said.

The combo pack regulations have led to a net impact of around 250-300 crore. The service tax amount on mobile revenue increased to 1,159.4 crore from 944 crore.

Overall, operating expenditure, which includes network operation costs as well as other commercial, employee, and goods costs, rose 21% to 9,180 crore from 7,570 crore in the year earlier.

The stock dropped 6.6% to 274.40 on BSE on Wednesday, while the benchmark Sensex fell 0.01% to 17,600.56 points.

Two years after the acquisition from Zain, Bharti’s Africa assets were of little help to the telco either. Its operation in the 17 countries saw net loss more than double to 670 crore from 301 crore. Revenue for the continent came in at 5,758.6 crore, up 31% from 4,378.4 crore. The company attributed the increase in losses to pressures on Ebitda, higher depreciation and substantial finance costs, including forex losses.

“Economic and currency headwinds are presently evident in key markets, as a result of the euro zone crisis, lower aid and grants, rising inflation and political issues in some countries. With this in mind, the company intensified market operations, advertising, network rollouts, as well as new growth initiatives such as 3G, Airtel Money and Rwanda," the company’s earnings statement said.

“Competition has increased significantly in some markets like Ghana. We are still growing faster than the competition," said Manoj Kohli, head of Airtel’s international business. He also signalled that the telco may take more time to achieve a target of $5 billion (27,550 crore) in revenue and $2 billion in Ebitda from its African operations than its earlier goal to achieve them by the year ending March 2013.

“There was significant divergence in the performance at the individual country-level. As per our proforma estimates, Bharti Africa witnessed approximately 35% revenue growth in Sierra Leone, Ghana, Uganda, and DRC (together contribute 18% of Africa revenue). However, proforma revenue growth is estimated to be single-digit/negative for Chad, Niger, Seychelles, Madagascar, Kenya, Malawi and Congo B (which together constitute 21% of Africa revenue)," said Shobhit Khare, telecom analyst at Motilal Oswal Securities Ltd, in an 8 August report.

Operationally, Airtel’s Africa operations are yet to pay off for the telco. The company reported average minutes of usage (MOU) declined 1.6% to 120 from 122 in the preceding quarter. Average revenue per minute (ARPM) fell 4% to 5.4 cents and average revenue per user (Arpu) fell 5% to $6.5 over the preceding quarter in Africa.

Africa Ebitda grew 35% to 1,492.4 crore over the corresponding period last year, due to revenue growth, improved margins and favourable currency movement. The Ebitda margin slightly improved to 25.8% from 25.2% in the corresponding quarter last year.

Operationally, India remained largely mixed with Arpu at 185, down 2% over the previous quarter and MOU flat at 433. Bharti’s ARPM fell 2.5% to 0.427 against 0.438 reported in last quarter, while non-voice revenue contribution to total revenue stood at 16.3% against 16.2% in the last quarter. “We have added 2.9 million new data users and now 21% of our customers are data users," Kapoor said.

“Costs have increased for them significantly, while there is very little tariff elasticity in the market, which is making things very difficult. They are expected to set up another 5,000 towers in the coming quarter. With increasing diesel prices, there is going to be huge negative impact on the books," said a Mumbai-based analyst working with a multi-national investment bank.

Airtel’s consolidated operating free cash flows for the quarter were at 2,273 crore, which represents an increase of 67.4% over the corresponding period last year. The net debt-equity ratio was at 1.38, while the net debt-Ebitda ratio was held at 2.54.

The company has a little more than $12 billion in debt, of which 15% will be payable in the next 12 months.

The company ended the quarter keeping its position as the fifth largest telco in the world with an overall customer base of 260.7 million across the 20 countries where it operates, including 190 million in India and South Asia.

Meanwhile, Bharti Airtel also informed BSE that it has appointed a committee of the board of directors to consider a public offering of its telecom tower unit Bharti Infratel Ltd (BIL) by selling up to 10% stake.

“The Committee of its Board of Directors will consider and finalise the terms and conditions with respect to participation in the offer for sale of equity shares up to 10% of BIL’s equity share capital and for matters incidental thereto," Bharti Airtel said in a filing to BSE.

BIL has more than 33,000 towers in operation. Bharti Airtel also holds 42% stake in joint venture tower company Indus Towers Ltd, which has more than 112,000 towers.

Also See | Despite its pricing aggression, Bharti is still losing revenue market share

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