The Zain acquisition and intense competition have started to show on the company’s profitability.
However, pangs of the Rs 60,000-crore debt and tariff wars will continue to take a toll on profitability in the short term. Overall, the stock has been the worst performer after Nokia Oyj on the Bloomberg World Telecommunications Index in the 12-month period ended June 30.
In India, the company’s average revenue per user from its 136.6 million wireless customers, a key metric in the telephone industry, plunged 23 per cent to Rs 215 from Rs 278. Operating profit margins, however, remained steady at 36 per cent. But, currency fluctuations and higher finance costs dragged net earnings by 19 per cent sequentially to Rs 1,696.9 crore in the June quarter. The foreign exchange loss of Rs 2,161 crore, as compared to a gain of Rs 159.7 crore, was one of the culprits. There could be some more negative news coming in on the earnings front in the next two quarters, as the Zain operations were counted for only 23 days during the quarter.
The 3G rollout, which is expected to stem the slide in the average revenues per unit, might not add to the numbers quickly. Now, hope for Bharti stems from two fronts. First, the average monthly phone bill in Africa ranges from about $7 in Kenya to as high as $20 in South Africa. This is higher than the average of $4 in India. Second could be the monetisation of the tower business. At present, net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) is around 3.4 times. Based on the valuations of the Reliance Communication deal, Bharti Infratel can potentially be valued at around Rs 44,000 crore. It could realise around Rs 28,000 crore and get the net debt levels to Ebitda down to two times.