Bharti Airtel ekes out profit amid tariff war4 min read . Updated: 22 Jan 2010, 11:16 PM IST
Bharti Airtel ekes out profit amid tariff war
Bharti Airtel ekes out profit amid tariff war
New Delhi: The tariff war that has thrown the world’s fastest growing mobile phone market into turmoil has taken a toll on its largest company, Bharti Airtel Ltd, which eked out a 2% growth in net profit for the quarter ended 31 December to Rs2,210 crore.
Net income fell 5% from the preceding quarter, while the Ebitda (earnings before interest, taxes, depreciation and amortization) margin—a key gauge of profitability—was 40% against 42.1% in the preceding quarter, as a result of the sharp decline in tariffs.
The war for subscribers doesn’t look like ending soon, given that more companies are expected to start services, making it evident why Bharti is keen to renew its push to reach out to markets outside the country such as Bangladesh, Sri Lanka and further afield.
“The industry is going through a peak in competitive intensity while another two players are expected to launch services soon," Manoj Kohli, chief executive officer, said in New Delhi on Friday while announcing the results.
Bharti has weathered the storm thus far, said a Mumbai-based analyst working with an international brokerage firm on condition of anonymity.
“They are handling the competitive intensity well, but the real test will come in the quarters ahead," he said. “The results are not bad, but the environment has not changed. They have been able to fulfil the strategy they had announced of retaining their market share of both subscribers and revenue."
The tariff war has led to the industry adding 15 million subscribers every month, but many of these are “multiple SIM subscribers", or people with more than one connection, with around 80% of the market made up of new customers, Kohli said.
With companies such as Uninor and MTS starting operations and expansion by incumbents, including Tata Teleservices Ltd and Reliance Communications Ltd (RCom) in the GSM space, tariffs have fallen to “unviable" levels, leading to an intense battle for subscribers.
Still, Bharti Airtel sees peace breaking out sometime in the next fiscal year and a subsequent round of mergers.
“I think this phase of hyper competition will continue for a couple of quarters," Kohli said, adding that the competition was expected to stabilize in the second half of the year. “By next year, the industry will see early signs of consolidation."
The current tariff war has led to a stalling of the steady decline in minutes of usage, according to Sanjay Kapoor, deputy CEO at Bharti Airtel. Minutes of usage is a measure of the time subscribers spend on calls.
“The minutes of usage may rise higher as more people move to the more competitive plans," Kapoor said, while sounding a warning. “If pricing continues to plummet, then profitability will also go down."
Other indicators continued to drop. Average revenue per user fell 29% to Rs230 in the December quarter, from Rs324 a year ago, with 60% of new subscribers coming from rural areas. Average minutes of usage fell 12% to 446 minutes, from 505 minutes a year ago and 450 minutes in the previous quarter.
The firm saw churn levels increase to 6.5% from the 2.9% reported for the same quarter last year and 4.5% reported at the end of the preceding quarter. This may get exacerbated when mobile number portability, allowing users to change networks while keeping their numbers, is implemented in March 2010.
Rival Idea Cellular Ltd, India’s fifth largest cellular operator, hasn’t been able to prevent profit eroding. On Thursday, it reported a 23% decline in net profit to Rs170.11 crore from the year ago, although sales rose 15% to Rs3,149.47 crore.
Second ranked RCom, which has been more aggressive in cutting rates, is expected to be worst-hit by the competition and may report quarterly profit almost halved when it unveils earnings later this month, analysts said.
Meanwhile, Bharti Airtel’s recent management recast reflects its intent to pursue overseas business with renewed vigour.
Starting 1 April, Kohli will head the new international business group that will renew the company’s focus on expansion in emerging markets, with Kapoor taking over as CEO.
Bharti, which last week agreed to buy 70% of Bangladesh’s Warid Telecom International Ltd in its first overseas acquisition, will continue to focus on expanding in emerging markets on a priority basis, Kohli said.
“This is an appropriate time when we look outwards to international emerging markets and implant our unique business model," he said.
The company’s most ambitious bid to go overseas was thwarted in September when it had to abandon a bid to merge with South Africa’s MTN Ltd after months of negotiations.
Bharti, in which South-East Asia’s top phone firm Singapore Telecommunications Ltd owns at least 30%, continues to focus on robust market share despite the “hyper competition" in the market, chairman Sunil Mittal said in a statement.
The telecom company’s shares fell 21% in the quarter underperforming the broader market that rose 2%.
Bharti’s shares fell 0.3% to Rs321.30 on the Bombay Stock Exchange on Friday, compared with a 1% decline in the benchmark Sensex, which closed at 16,859.68.