Bharti Airtel Ltd’s June quarter results will bring relief to investors, especially after the shocking results of Vodafone Idea Ltd. Revenue at Airtel’s mainstay India wireless business grew for the second consecutive quarter. They are up 2.2% from March quarter, on the back of a 4.3% sequential expansion in the March quarter.
In comparison, revenues at Vodafone Idea had fallen 4.3%, and resulted in a 22% drop in operating profit on a like-to-like basis. In Airtel’s case, operating profit or Ebitda dropped only by 1.8%. Ebitda stands for earnings before interest, tax, depreciation and amortization.
"Bharti’s ahead-of-Vodafone Idea network investments, slightly better quality of subscriber base, and some success of its loyalty/partnership program (Airtel Thanks) are all playing a role on Bharti’s superior relative performance to Vodafone Idea," analysts at Kotak Institutional Equities said in a note to clients.
Drill down further and it becomes clear why Airtel has handled the onslaught of Reliance Jio Infocomm Ltd much better. To start with, the fall in its subscriber base is far lower than Vodafone Idea’s.
Importantly, the expansion in mobile broadband towers is better at Airtel, where they rose 2.6% to 177,141 towers. Vodafone Idea saw a mere rise of 1.1% to 157,278 towers.
Note that Vodafone Idea’s revenue is ahead of Airtel’s, even while its broadband coverage is lower. It isn’t surprising then that Airtel’s total data customer base grew 4.3% last quarter, while Vodafone Idea’s data users fell 2%.
Data usage per customer has seen notable improvement— up 8% vis-à-vis 4.9% in March quarter. As a consequence, the improvement in realization, also known as average revenue per user, is also better at Airtel.
Now that Airtel has reported a steady performance for its India wireless business, it is evident that Vodafone Idea’s underperformance can be explained by company-specific issues. The mega-merger and the time taken to integrate teams and networks have weighed on the latter’s performance.
It is not yet clear how Airtel customers are reacting to minimum recharge plans. Vodafone Idea’s experience with the minimum recharge plans has not been encouraging, forcing the company to alter the plans. It is also not yet clear if the pace of down-trading in post-paid segment has slowed at Airtel. Prima facie, Airtel appears to have handled these pressures better.
Meanwhile Airtel Africa, the other key business segment, reported a steady quarter with revenue and operating profit growing slightly from the March quarter.
While key operating metrics of the India business show incremental improvement, much depends on market repair. Capital expenditure remains elevated and earnings expansion remains a challenge. “Although we think Bharti is better positioned than incumbents, we believe recovery is still some way off. The key for Bharti, in our view, will be an improvement in pricing, which remains elusive. Jio has said it does not feel the need to change ARPU (average revenue per user) currently. We expect competitive intensity in the India business to stay high over the next 12 months," analysts at Jefferies India Pvt. Ltd said in 28 July note.