Bharti profit slumps 28% on tax payout, interest costs

Bharti profit slumps 28% on tax payout, interest costs

New Delhi: Bharti Airtel Ltd, India’s largest telecom service provider, posted a bigger-than-expected slump in net profit in the quarter to June on the back of increased interest costs, a higher tax payout, losses made by its Africa assets and foreign exchange fluctuations.

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Net profit dropped 28% to 1,215 crore from 1,682 crore in the year earlier, the firm said in a release on Wednesday. Total revenue rose 39% to 16,974.9 crore from 12,244 crore. Profit trailed the 1,480 crore analyst estimate compiled by Bloomberg.

“Bharti’s results were a mixed bag with revenue almost in line, but operating margins came in lower than expected," said Srishti Anand, telecom analyst at Angel Broking Ltd.

The firm’s stock dropped 1.23% to close at 426.75 on BSE. The Sensex fell 0.94% to 17,940.55 points.

Bharti’s overall customer base stood at 230.8 million across 19 countries, up around 47 million over the last 12 months.

Interest costs and finance charges rose as the firm starts to amortize loans taken to acquire high-speed third-generation (3G) licences and broadband wireless access spectrum in auctions last year. Bharti paid approximately 15,600 crore in last year’s auctions, including 12,300 crore for 3G spectrum.

The “net finance cost for the quarter was 855 crore with interest on borrowings during the quarter at 593 crore and finance charges during the quarter stood at 129.7 crore", Bharti announced.

Some of the circles in which the firm operates emerged from a tax holiday, resulting in a higher outgo, said Manik Jhangiani, chief financial officer (CFO) at Bharti group. The effective tax rate for the quarter increased 29.9% because of this, the company said. Income before taxes was 1,719 crore.

The company highlighted an improvement in the “net debt-equity ratio to 1.20 (down from 1.38) and net debt-Ebitda (earnings before interest, taxes, depreciation and amortization) ratio to 2.77" owing to “continued robust cash generation". Consolidated operating free cash flow for the quarter was 1,357 crore.

The firm has been facing challenges in 3G operations that are now available everywhere, except Orissa and Punjab, through bilateral roaming agreements with Idea Cellular Ltd and Vodafone Essar Ltd. Last week, the firm launched 3G services in Himachal Pradesh and Chhattisgarh.

“While there is no specific data, there is a lot of talk within the industry on the quality of their 3G network. It doesn’t look like the network has received the attention that it should have," an analyst said, requesting anonymity.

“There is a substantial increase in the number of 3G-enabled handsets being sold in the market and this should lead to an increased uptake in the future," said Shrikant Balachander, CFO at Bharti Airtel. “At present our focus is on the enhanced user experience."

The firm recently announced a hike in tariffs across most circles.

“The tariff decline had rationalized over the past few quarters and given the increasing expenses, we were forced to take a call on this," Sanjay Kapoor, chief executive officer (CEO) for India and South Asia, said in a conference call. “We don’t expect any major shift in the volumes due to this, but there may be some marginal correction in the markets."

Bharti announced the earnings from Nairobi, the headquarters of its 16-country Africa operations, which turned a year old during the quarter. Company results have previously been unveiled at the Delhi headquarters.

Last year, Bharti acquired Zain’s Africa operations for $10.7 billion (around 47,500 crore today) to become the world’s fifth largest mobile operator.

Africa revenue for the quarter stood at around 4,380 crore, up 6% from a year earlier, while the net loss was approximately 300 crore, almost double of that last year.

“In Africa, we are in investment mode and are investing heavily in the networks as we are lagging the market leaders in most of the markets by a large amount," said Manoj Kohli, CEO for Africa. “The main focus is to gain revenue share and plug the gap of poor network quality in many of the markets. This will take around two-three quarters."

In Africa, the firm is seeing some challenges with many countries implementing very strict KYC (know your customer) norms that are causing sluggish customer additions. “But these will get smoother with time," Jhangiani said.

Interestingly, average revenue per user (Arpu) in Africa rose marginally to $7.3 from $7.2 in the preceding quarter, while in India it continued to drop—to 190 from 194 in the preceding quarter. The India Arpu is much higher than the industry average of 100.

Bharti’s “key performance indices like minutes of usage and average revenue per minute slipped marginally to 445 (minutes) and 0.43 paise. However, the net profitability came in lower on account of higher tax rates and higher depreciation", said Anand of Angel Broking.

The company’s India non-voice revenue (data, VAS or value-added services, SMS) showed a marginal decline to 14.6% of total revenue for the quarter, off the peak of 15% that was reported last year, despite a 3.64% growth in total mobile revenue to 9,840.4 crore. This was mainly attributed to seasonality. In the preceding quarter, “there were a number of festivals, including New Year’s, Holi and Valentine’s Day. There was also the cricket World Cup", Balachander said.

Bharti also said on Wednesday that corporate directors and CEOs (Asia and Africa) won’t be getting any raises, following the example of promoter, chairman and managing director Sunil Mittal, to help drive cost efficiencies.

“Bharti Airtel has started this fiscal year on a stable note. Revenue growth has been steady across all geographies, with Africa recording a healthy sequential growth of approximately 6% and annual growth of 21%," Mittal said in the statement.

India and South Asia revenue rose 11.9% to 12,631 crore from 11,285 crore in the year earlier.

The firm has also restructured its India operations, effective Monday, in order to become more “customer oriented and agile", Mittal said.