The company’s management and analysts aren’t perturbed by the drop in growth, though. On the one hand, the size of the company, and hence the base, has increased. On the other hand, the September quarter has traditionally been the weakest for the company.

Besides, the impact of spreading its network to rural India and price wars are visible in the company’s results. The average realized rate on every minute of wireless traffic fell by 3.8% on a quarter-on-quarter basis. Unlike the preceding quarters, lower tariffs didn’t result in increased usage. As a result, average revenue per user fell by 5.3%.

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Network operations cost increased by 16.8%, much higher than the 6.3% growth in revenues, reflecting the impact of expanding into the countryside. The company management said in a conference call with analysts that some of its rural network didn’t have immediate access to electricity supply, leading to higher diesel use to run them—and hence, the disproportionate rise in costs. Depreciation charges, too, rose at a relatively higher rate of 13.5%.

Profit before tax fell by as much as 17.2% sequentially, thanks to a fourfold jump in losses due to forex fluctuations. According to the company, these losses are notional, since most of its foreign currency obligations are hedged using derivatives. Adjusted for these losses, earnings before tax rose by about 1% sequentially to Rs2,559 crore, more or less in line with street estimates.

According to an analyst with a domestic brokerage, Bharti now looks well set to beat consensus estimates of about Rs15,000 crore of earnings before interest, taxes, depreciation and amortization (Ebidta) for the current fiscal year. It needs to raise profit by less than 3.5% in both the next two quarters to achieve that target.

But it’s not only an upward revision in earnings estimates that should work in the favour of Bharti shares. Compared with most other telecom operators in the country, the company is best placed in terms of balance sheet strength.

It already has a nation-wide presence and hence doesn’t have a large capital expenditure requirement. What’s more, it turned free cash flow-positive for the first time last quarter, which means its operating cash flow was sufficient to take care of the last quarter’s capital expenditure needs.

Not only do other telecom operators not have that luxury, but it also turns out that many are in the midst of large network rollout plans, which requires access to funding. In the current scenario where credit is difficult to come by, Bharti’s net debt-equity ratio of 0.09 times and interest cover of 44 times is enviable.

The company is also well placed to take advantage of the entry of new telecom operators such as Telenor and Datacom. With funding becoming scarce, new operators are more likely to lease tower infrastructure of existing operators rather than deploy their own. Revenues from such lease rentals would offset the impact of price competition, if any, after the new players start operations.

Graphics by Paras Jain / Mint

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