When a company’s results filing extends into the late evening hours, it is normally assumed it is trying to postpone bad news. In Bharti Airtel Ltd’s case, its late Monday results filing was full of positive surprises, in contrast.
Its flagship India wireless business reported a 4.4% sequential jump in revenue, far higher than the 1% increase analysts at brokerages such as Kotak Institutional Equities and IIFL Institutional Research were expecting. What’s more, given the fairly high operating leverage associated with the telecom business, losses before interest and tax fell to ₹1,378 crore, from ₹1,903 crore in the December quarter.
Mint’s rough calculations show that this is the first quarter since Reliance Jio Infocomm Ltd started operations in September 2016 that Airtel has reported an increase in Ebitda (earnings before interest, tax, depreciation and amortisation).
Analysts say the revenue and earnings prints for the India wireless business are substantially higher than their estimates. The improvement comes on the back of a requirement for subscribers to make minimum recharges, which weeded out low-quality subscribers. While the company has been saying that this has a better-than-expected impact on its revenue profile, hardly anyone had factored in the impact to be as meaningful.
Note that Airtel’s growth of 4.4% isn’t much lower than Jio’s 7% growth in the March quarter. “The growth differential between the two companies has narrowed considerably," says an analyst at a multinational brokerage firm.
Results of the last two quarters indicate some signs of stability in the sector, after several quarters of declining revenues and profits. Of course the fact that Airtel is still running losses means that the road to recovery will be a long one.
Airtel Africa, which had already reported results, was ahead of expectations as well. With both main divisions performing well, consolidated results naturally beat the Street’s estimates by a mile. For instance, while analysts at Kotak had estimated a drop in consolidated Ebitda, Airtel reported a sequential increase of about 6%.
As pointed out earlier, the better-than-expected results should be seen in the backdrop of the several quarters of disruption in the industry. Firms are still running losses and burning loads of cash, with debt continuing to rise. Airtel, like Vodafone Idea Ltd, is raising ₹25,000 crore through a rights issue to help strengthen its balance sheet, and also raise funds for future expansion.
Hopefully for the company and its investors, if the improvement in financial performance is here to stay, there won’t be a need for another such fundraise for a long time to come.