Bharti Airtel Ltd’s results were ahead of analysts’ estimates, though they didn’t come as a major surprise, since competitors Idea Cellular Ltd and Vodafone Essar Ltd had already reported better-than-expected results.

The core mobile services business in India and South Asia reported a 6.1% increase in revenue and a 4.9% rise in earnings before interest, tax, depreciation and amortization (Ebitda). This compares with a decline of 0.5%, 8.7% and 2.3% in the preceding three quarters, indicating a trend reversal.

Also See Signs of Improvement (Graphic)

This reflects the improvement in the domestic wireless business, since competition from new entrants such as Uninor and Etisalat hasn’t been as intense as analysts had feared. In the June quarter, the total traffic carried on Bharti’s domestic mobile network rose 10.2% to 190.4 billion minutes.

Earlier, Idea and Vodafone had reported a rise of 13% and 10%, respectively, in minutes of usage. Average revenue per minute fell by around 2 paise, or 4.6%, for Bharti, which again wasn’t very different from the experience of its peers, whose average realization fell by around 3 paise.

The large increase in minutes of usage more than compensated for the decline in realizations, resulting in a healthy growth in revenue and profit. But this was factored into the company’s share price after the good results from Idea. In fact, despite the better-than-expected results, Bharti’s shares corrected a bit on Wednesday.

While the operating performance of the domestic business has improved, some concerns remain. As a Citigroup report pointed out a month ago, there is renewed regulatory concern on the sector, erosion of fundamental profitability thanks to the overshooting of third-generation (3G) bids, and the possibility of sharp cuts in post-paid tariffs owing to the fragmented 3G footprint of operators. Besides, whenever number portability is implemented, it could further impact tariffs. It’s imprudent to assume that things have completely stabilized as far as domestic operations go.

Of course, the performance of Zain is critical to the stock’s performance. The firm has reported Zain’s results for 23 days, and it’s premature to make judgements based on it. Still, Zain’s reported Ebitda of 27.5% is lower than its margins in the preceding two years.

Besides, some analysts are concerned about the fact that Bharti hasn’t hedged the foreign exchange exposure related to its acquisition debt.

Bharti shares, which have risen by about 22% since July, don’t seem to reflect some of these concerns.

Graphic by Paras Jain/Mint

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