Airtel Q1 net jumps 34%

CORPORATE SCORECARD

Buoyed by a robust growth in its subscriber base, expansion of mobile coverage across rural markets and healthy margins in the non-mobile business, telecom operator Bharti Airtel exceeded market expectations by posting a growth of 34 per cent in net profit at Rs 2,025 crore in the first quarter ended June 2008 compared with the previous corresponding period.

With over 7.5 million new customers added this quarter, the highest ever in a quarter, its consolidated revenues jumped 44 per cent to Rs 8,483 crore. While the average revenue per user (ARPU) fell to Rs 350 (Rs 357 in the January-March quarter).

The company moved deeper into rural markets, resulting in the average monthly minutes of usage per subscriber showing a healthy increase of 5 per cent to 534 minutes per month over the last quarter. The company also increased its market share to 24.2 per cent (23.5 per cent in June 2007), reinforcing its No. 1 in the mobile space.

More importantly, the company was able to keeps its EBIDTA margins stable at 41.5 per cent (41.4 per cent last year) despite stiff competition. And though margins in the mobile business fell to 30.7 per cent (40.6 per cent last year), this was primarily because the mobile division was now paying for the usage of the tower infrastructure, which has been hived off as a separate subsidiary "� Bharti Infratel. Last year, in a restructuring exercise Bharti has spun off its tower infrastructure into a separate company.

Akhil Gupta, joint managing director, Bharti Airtel, said, "By hiving it off, we have been able to reduce capital expenditure on a standalone basis by $1 billion. Earlier, the tower business was part of capital expenditure and the mobile division did not have to pay for using the asset. So the business model has changed completely and mobile margins of the previous years become irrelevant."

On BSE, the Bharti Airtel scrip fell by 2.21 per cent to close at Rs 797.95 compared with Rs 816 yesterday.

Analysts say that while margins in the mobile business will be under pressure, the company's non-mobile business has been doing very well. Says Harit Shah, research analyst (IT-telecom), Angel Broking, "Margins in the mobile business will continue to decline. However, the margins taking a hit on the mobile side will be compensated from the non-mobile side."

The margins for the non-mobile business have shown good growth. For instance, EBIDTA margins for landline have grown by over 100 per cent compared with last year. Similarly, on the enterprise side, the EBIDTA margin has doubled. And the overall EBIDTA margins for the non-mobile business ranged around 32-44 per cent.

On whether the falling average revenue was a concern, Manoj Kohli, president and CEO, Bharti Airtel, said, "Surely the tariffs are under pressure, they will always be under pressure in an intense competitive environment.

But we are holding up very well. The ADC charge reduction benefit (Trai reduced ADC from April 1) has been passed on to consumers, so the impact of a decline in revenue per user was lessened."

The increase in revenue was also facilitated by expanding its coverage, which went up to 74 per from 71 per cent in the previous quarter.

The company added also over 21,600 non-census towns and villages in its network and now covers 5,048 towns across the country compared with 5,023 in the previous quarter. And as much as 50 per cent of the new subscribers are from rural India.