Low call rates due to rising competition pull down profit
Falling call rates due to rising competition pulled Bharti Airtel’s net profit down eight per cent for the fourth quarter ended March 31. The fall, the first in three years, comes at a time when the country’s top mobile service provider is looking to quickly integrate its $9 billion purchase of Zain Telecom’s African assets — as early as mid-May.
The company has raised $8.3 billion as debt to fund the acquisition. In addition, it is considering raising funds from the stock market through an initial public offering (IPO) of its tower business. “We will finalise this in a couple of quarters,” Bharti Enterprises Group Chief Financial Officer Manik Jhangiani said. The proceeds from the IPO may be used to retire debt.
It would help that credit ratings agency Crisil has upgraded Bharti Airtel's four long-term banking and debt programmes. The programmes were moved to “Ratings Watch with Negative Implications” in February, after Bharti Airtel announced plans to acquire Zain Africa at an enterprise value of $10.7 billion. Today, Crisil reaffirmed AAA category status for the company, while keeping the outlook “Negative”. AAA is the highest rating that Crisil assigns to companies or banking/debt programmes. The rating comes with “outlooks”.
“The ratings reaffirmation reflects Crisil's belief that strong cash flow generation from Bharti Airtel's Indian business will aid the company's organic deleveraging (reduction of debt by using internal cash flows),” said Crisil.
Bharti, controlled by Sunil Bharti Mittal and 32 per cent owned by Singapore Telecommunications, has been in the midst of a bruising price battle with old rivals like Vodafone and Reliance Communication and new ones like Tata DOCOMO in the world’s fastest growing market. Rates have fallen to as low as 1 paisa per second.
Not surprisingly, Bharti Airtel’s net profit fell to Rs 2,055 crore for the three months ended March 31, from Rs 2,239 crore a year earlier. The company added customers at the slowest pace among the seven largest operators.
“Every quarter is tough, every year has been tough. But, very clearly, last year, in terms of the intensity and irrationality, has perhaps been the toughest,” Akhil Gupta, deputy CEO at the mobile firm's parent, Bharti Enterprises, told reporters.
Fourth-quarter sales rose 2.3 per cent to Rs 10,055 crore. Earnings before interest, taxes, depreciation and amortization, a measure of profitability known as Ebitda, fell 4.5 per cent to Rs 3,820 crore, while Ebitda margin declined to 38 per cent, from 41 per cent a year earlier.
“Bharti Airtel continues to be strongly positioned in India despite a hyper-competitive market,” Mittal said in a statement.
Bharti expects capital expenditure in the current financial year for its Indian operations, excluding costs for the third-generation network, to be $1.5 billion to $1.8 billion.
Gupta, however, struck an optimistic note in saying, “We do believe that the temporary phase (pricing war) is out and that we have emerged much stronger in the process out of this very challenging time.”
Bharti Airtel’s average revenue per user was at Rs 220 in the fourth quarter, 28 per cent down from Rs 305 in March 31, 2009. The average rate per minute stood at Rs 0.47 in Jan-Mar quarter from Rs 0.63 in the same quarter last year, a decline of 25 per cent.
For the full year 2009-10, the consolidated revenue was up seven per cent at Rs 39,620 crore year-on-year, while its net profit was up seven per cent at Rs 9,103 crore.
The Bharti Airtel stock fell 1.26 per cent to Rs 294.50 in a falling market today.
