The growth in the top line has been disappointing but a check on costs has helped sustain the operating profit margin.
In what has probably been one of the most difficult quarters for incumbent GSM telcos, because of Reliance Communication’s GSM rollout, Bharti Airtel’s numbers have been reasonably good. It’s true the sequential rise in revenues at just 2 per cent is a tad disappointing — revenues in the past have risen by about 5-6 per cent — but a decent operating profit margin(OPM) has made up for it. The reported OPM of 40.7 per cent would be higher by about 200 basis points, if rentals paid for 35,000 towers transfered to Indus Towers are adjusted.
The fall in average revenue per user (ARPU) which slipped by 6 per cent sequentially to Rs 305 was more or less expected partly because of the competition and also because Bharti is increasing its rural reach with 52 per cent new subscribers from rural areas. Also, while the minutes of usage came off by 20 minutes to 485 minutes, it was partly because the quarter had fewer days; adjusting for that, the fall would be just 9 minutes.
Obviously the free minutes offered by the competition has had some impact but the average revenue per minute has fallen just 2 per cent sequentially implying that Bharti hasn’t attempted to match the competition’s prices. If margins for the wireless have been good, it’s because Bharti has managed to control expenses on sales — while market share gives it bargaining power in the urban areas, rural channels tend to be cheaper.
Also, since it now covers 80 per cent of the population, capital expenditure may not rise much going ahead. While competition is likely to get fiercer and put pressure on the top line — Vodafone has been gaining share in several new circles where it has launched — Bharti’s scale and revenue market share of 32 per cent give it an edge over the competition. The stock has underperformed the market since the start of the year and currently trades at 7.5 times EV/EBITDA (enterprise value/ earnings before interest, tax and depreciation) which is attractive.