Photo: Sarvesh Kumar Sharma/Mint
Photo: Sarvesh Kumar Sharma/Mint

Airtel Q2: Steady Africa business is no solace as losses in India rise

Losses in the India mobile business are slightly higher than Street estimates, reflecting higher cost pressure.

For investors of Bharti Airtel Ltd, battered by competition in the mainstay India business and a 42% fall in share price during the last one year, the September quarter results may not provide much succour. Consolidated revenue grew 1.7% sequentially, aided by steady business in Africa. The Africa business, which now generates 28% of Airtel’s revenue, grew 3.8% in constant currency terms. In spite of that, operating profit of the consolidated entity dropped.

The mainstay India mobile services business continues to struggle. Losses before interest and tax expanded to 1,591 crore. As a percentage of revenue, they increased to 15.5% from 8.4% in the June quarter. Cash burn almost doubled from a year ago but eased slightly on sequential basis. The average revenue per user (ARPU) dropped to 101 from 106 in the June quarter. But, compared to earlier quarters, the pace of the fall has reduced (see chart 2).

According to an analyst, Airtel restated the subscriber numbers. As a consequence, the fall in ARPU eased a bit.

But otherwise, losses in the India mobile business are slightly higher than the Street estimates, reflecting elevated cost pressure.

The company’s Africa business, on the other hand, delivered steady performance. Margins and operating profits expanded on a sequential basis.

Notably, the company received an equity infusion of $1.25 billion from global investors, the proceeds of which are expected to be used to partly retire debt. The fund infusion is seen as a precursor to the initial public offering (IPO) of the Africa unit which should further help ease leverage, helping the parent company.

The development should please investors. “This equity infusion is a significant positive and a benchmark ahead of the upcoming IPO for Africa operations. We note marquee investors have put in money, signalling Bharti Airtel has the faith of large international investors," analysts at Elara Securities (India) Pvt. Ltd said in a note.

But will this revive the struggling stock? Analysts are not convinced.

Many fear competition in the mainstay India business to weigh on revenues in the near term, clouding earnings outlook.

The principal competitor Reliance Jio Infocomm Ltd’s focus on customer acquisition is expected to weigh on incumbents’ realizations. “We believe Jio’s new plan is likely to put to rest any hopes of a meaningful ARPU recovery for another 12 months, at least at a time when the Street and the incumbents were expecting a sharp recovery in the near term (4-6 months)," analysts at SBICAP Securities Ltd said in a note, adding: “We do not see any let-up in competitive intensity in the near term as Jio remains focused on market share gains, and incumbents continue to struggle with weak cash flow generation and stretched balance sheets."

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