Can Airtel's Africa Safari offset Reliance Jio's jolt?

Turnaround of Africa business to the monetisation of tower assets decreasing debt levels: Analysts

The calming effect provided by Bharti Airtel’s Africa business in the fourth quarter, ended March 31, is expected to continue for a few more quarters, analysts said, and may even help alleviate the pressure in the domestic market mainly from rival Reliance Jio’s aggressive pricing strategy.

A fundamental analyst said that the company’s Africa performance is likely to improve in the next 2-3 quarters and may even offset Reliance Jio’s pressure in the domestic market. 

Even after attempts to reduce its debt and rationalise Africa operations, some experts remain sceptical about the Africa story that made the company’s margins bleed in the past.

An expert felt that Reliance Jio’s impact being offset by an improvement in Africa is a bit farfetched.

“The stakes are much higher in India where the market is much larger and the company has a unique position as a leader for over a decade,” he said.

Another analyst said margins in Africa have improved, but the competition may have an impact on the revenues even in that geography. One would look at another quarter to gauge true improvement in Africa.

The country’s largest telecom service provider posted a net profit of Rs 373 crore in the January-March quarter, a 72 per cent fall from the same period last financial year (2015-16). 

Its consolidated revenues were down 12 per cent year-on-year during the January-March period at Rs 21,935 crore.

The company bore the brunt of Reliance Jio’s aggressive pricing strategy. Jio had launched its free voice and data plan in September last year, and then extended it till end-March. It currently still offers free voice services, while its data rates are lower than those of the incumbents.

Jio’s onslaught also weighed down Idea Cellular’s earnings as the Mumbai-base telecom firm reported a net loss of Rs 328 crore in the second straight quarter ended March 31.

“The sustained predatory pricing by the new operator has led to a decline in revenue growth for the second quarter in a row… The deteriorating health of the industry was compounded by the tsunami of incoming voice traffic from the new operator…” Gopal Vittal, managing director and chief executive officer, India & South Asia, had said in an official release.

The telecom industry owes about Rs 4.6 lakh crore to financial institutions.

Bharti Airtel’s average revenue per user (Arpu) declined 18.9 per cent to Rs 158 in the period, against Rs 194 in the same period of the previous financial year. The voice Arpu declined 17.2 per cent to Rs 114 from Rs 138 in the earlier March quarter.

The data Arpu at Rs 162 was higher but 17 per cent less than the Rs 196 in January-March 2016.

However, on the next day of the announcement of its results the telecom major’s stock rallied nearly 10 per cent on the BSE.

Analysts said the stock soared mainly due to the belief that the Africa region would do well in the future.

In constant currency terms, revenues in its African operations grew by 2 per cent over a year. 

A Credit Suisse reported said, Bharti Airtel Management remains focused on costs in India and Africa. The company has operations in  17 countries across Asia and Africa.

“Airtel Africa underlying revenues grew by 4.4 per cent in constant currency terms during FY17… Revenue market shares in our key geographies continue to accelerate,” Raghunath Mandava, managing director and chief executive officer, Africa said.

JP Morgan India in its report said, Bharti Airtel fared much better than expected in turning around its African operations with consistent improvement in EBITDA margins -- 26.8% in fourth quarter of FY17 up from 19.6% in the same period last financial year.

Bharti Africa generating free cash flows of US$103 million in constant currency terms in March 2017.

Analysts have attributed the turnaround of Bharti Airtel's Africa business to the monetisation of tower assets that resulted in decreased debt levels.

The company’s tower selling spree in Africa started in October 2015 when it sold about 8,300 mobile towers for $1.7 billion. In May 2016, the company entered into a pact with towers company Helios Towers Africa to sell approximately 950 telecom towers in the Democratic Republic of Congo. The agreement also includes towers currently under construction in the DRC.

Bharti Airtel's consolidated net debt totalled $14.09 billion in January-March 2017 compared with $14.34 billion in the previous quarter and $12.60 billion a year ago.