The markets on Wednesday gave a thumbs-up to Bharti Airtel, the country's largest telecom service provider, despite it posting a decline of 28 per cent in its consolidated net income, the ninth straight quarterly drop, to Rs 1,006 crore during the fourth quarter ended March 31.
Nevertheless, the stock went up on Wednesday by 2.4 per cent to close at Rs 317.95. The reason was primarily because operations were on the upside. The company showed improvement in its Ebitda (earnings before interest, taxes, depreciation and amortisation) margins and reduced losses in its African operations. Also, the increase in rates it has been able to undertake, especially after intense competition got muted in the mobile telephony segment, has helped it raise average revenue per user (Arpu) over two quarters without compromising on growth in minutes of usage, which went up for the first time after seven quarters.
The fall in net profit, on the other hand, was primarily due to the costs involved in borrowing money to finance the cost of expensive 3G spectrum and the roll out of the network. This was reflected in higher costs on account of the 3G licence fee amortisation (Rs 106 crore), 3G interest cost (Rs 84 crore), forex fluctuation losses (Rs 132 crore) and tax provisions (Rs 198 crore).
The company has said it planned total capital expenditure of $3-3.2 billion in India, Asia and Africa in 2012-13. Total revenue grew 15 per cent to Rs 18,729 crore for the March quarter, against Rs 1,293 crore in the same quarter last year.
The good news is that the Arpu went up to Rs 189 in the March quarter, compared to Rs 187 in the December one. The average minutes of use per user increased three per cent to 431 in the March quarter, against 419 in the earlier one. Non-voice revenue as a percentage of all mobile revenue increased marginally to 14.4 per cent from 14.3 per cent.
“In the last two quarters, we have been busy correcting some structural defects and rate increases, and this has given us the headroom to re-invest this increase back into the market and consolidate our market position,” said Sanjay Kapoor, chief executive officer (India and South Asia).
For the year ended March 2012, net profit was down 29.6 per cent at Rs 4,259 crore, compared to Rs 6,047 crore in 2010-11. Total revenue for the year was Rs 71,451 crore, as against Rs 59,538 crore in 2010-11, up 20 per cent. The board of directors has recommended a dividend of Rs 1 per equity share of Rs 5 each for 2011-12.
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Africa
The other good news was that the African operations, for which the company had taken a lot of debt, impacting profitability, seems to be slowly paying off . In June 2010, Bharti acquired the mobile operations in 15 African countries of Kuwait-based Zain.
The African Ebitda margins improved to 27.8 per cent during the fourth quarter from 26.7 per cent in the previous one. Keeping a control on costs also helped reduce the losses on African operations to Rs 340 crore in the March quarter as compared to Rs 416 crore in the same quarter the previous year. African revenues rose 28.8 percent to Rs 5,387 crore in the quarter.
Also, data revenues are clearly showing an uptrend in the African operations. Non-voice revenue as a percentage of total mobile revenue hit 8.6 per cent this March, compared to eight per cent in December.
Manoj Kohli, the international operations CEO, said Africa’s operational performance during the quarter was mainly hit by a nine-day strike in Nigeria, its biggest market there. However, the company was moving steadily towards its target of $5 bn in revenue and $2 bn in Ebitda from Africa by March 2013. The company has launched 3G mobile services in seven African countries and Airtel Money, its mobile wallet service, in eight markets. Kohli said by September, both these services would be launched in all the African markets they were in. The investment in Africa during 2011-12 was $1.5 bn and the plan is for another $1 bn in 2012-13.
Issues
Analysts and research agencies say Bharti is on the right track. A Barclays note said, “Bharti's strategy on customer acquisition has started to play in its favour, as the increase in traffic minutes of 11.2 billion over the December quarter surpassed the 10.3 billion minutes increment reported by Idea.”
Barclays research note also says the trend in demand elasticity is a positive for the industry, though the traffic growth has come at the expense of a decline in price realisations. “We believe these factors, combined with the improving subscriber additions for Bharti, could turn the overall revenue growth dynamics back in its favour. The recent licence cancellation will help competitive dynamics and allow Bharti the flexibility to balance pricing and volume,” the note added.
Angel Broking analyst Ankita Somani said, “The Bharti result is a mixed bag. On a positive note, margins, Arpu and minutes of usage have increased. But, the revenue growth is not in line with expectations. The operational performance is definitely encouraging. But regulatory uncertainty will overhang on the stock prices for all telecom players, including Bharti.”
The industry has been hit by uncertainty since the Supreme Court order cancelling 122 2G licences and subsequent auction of vacated spectrum. The industry has also criticised the sector regulator, Trai’s recommendations on the re-auction, where it has proposed a steep reserve price.
The concerns were also raised by Bharti on the regulatory scenario, which would have a major bearing on the bottom line. “The recent regulatory developments in India will have significant implications on the future of telephony and broadband, as well as India's global competitiveness. The entire industry looks to the government for a fair, transparent and sustainable telecom regime,” said chairman and managing director Sunil Mittal.
Said Akhil Gupta, deputy group CEO and managing director of Bharti Enterprises, “This was perhaps the most disturbed year (2011-12) on the regulatory front...The uncertainty not only continues but it is huge.The government should take pro-customer and pro-industry decisions with regard to spectrum pricing.”
He added it had been a very satisfactory quarter for the company. “In India, we got the growth back...As far as Africa is concerned, the upward trajectory continues, both in terms of revenues, Ebitda and the overall operations. We believe we now have all the building blocks in place to enable us to go for more data growth in the markets where we are,” he said.