Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.
Stock Analysis, IPO, Mutual Funds, Bonds & More

Africa operations drag down Bharti Airtel's Q3 profit 41%

Bharti Airtel, India’s largest mobile phone operator, reported a bigger than-expected 41% drop in quarterly profit weighed down by its Africa operations and foreign exchange losses, even as its management was upbeat about future prospects.

ET Bureau|
Feb 03, 2011, 03.59 AM IST
NEW DELHI: Bharti Airtel, India’s largest mobile phone operator, reported a bigger than-expected 41% drop in quarterly profit weighed down by its Africa operations and foreign exchange losses, even as its management was upbeat about future prospects.

Despite being involved in a price war in several African countries, the telco said its revenues from the continent increased nearly 9% in the three months ended December 2010 compared with the previous quarter ended September ‘10, proof that its turnaround strategy is yielding results.

Bharti also said it had increased revenue market share in Africa by 1% in the December quarter, without divulging details. The Sunil Mittal-promoted telco, which is 32% owned by SingTel, had acquired the African assets of Kuwait’s Zain in a $9-billion deal last year, making it the fifth-biggest mobile operator globally in terms of customers.

This marks the fourth consecutive quarter of Bharti reporting a decline in profits. Its rival GSM operator in India, Idea Cellular, last week reported a higher-than-expected 43% jump in third-quarter net profit despite tariff pressure in the ultra-competitive 14-player domestic market.

Bharti’s quarterly profit nosedived 41% to Rs 1,303 crore from Rs 2,195 crore for the three months ended December ‘10 on account of a one-off foreign exchange loss of Rs 151 crore and Rs 341-crore rebranding costs combined with a Rs 80-crore increase in spectrum usage costs.

“Without these exceptional costs, net profit would have increased 10% on a quarter-on-quarter basis and flat on a year-on-year basis,” Bharti CFO Manik Jhangiani said.

Growing stability in domestic market

Endorsing this view, analyst Bhavesh Gandhi of IIFL Capital said, “If you take out the one-off branding expenses and foreign exchange losses, their net profit may not look as depressed as it appears. Their top line is also largely in line with our estimates.”

The company’s sales in India showed healthy gains of nearly 14% for the quarter ended December 10 compared with the corresponding period in the previous year, Sanjay Kapoor, CEO (India and South Asia), said. Bharti’s performance reflects growing stability in the domestic market, after operators’ margins and profits had been brutally reduced in previous quarters by savage price wars.

Sales jumped 53% to Rs 15,756 crore in the third quarter. Earnings before interest, tax, depreciation and amortisation, or Ebitda, a key indicator of profitability, was up 22% to Rs 4,982 crore from Rs 4,082 crore a year earlier, Jhangiani added.

But comparing the results for the December ‘10 quarter to the same period previous year may not provide the complete picture since latest figures include its Africa operations. Zain’s results have been reflecting in Bharti’s performance only for the last two quarters.

The company’s shares fell over 3% as soon as the results were announced, but the markets wiped out these losses to close 2.75% up at Rs 323.25 after analysts gave a thumbs up to its future prospects due to launch of 3G services in India and improved performance in Africa.

“My sense is on a three-year horizon, Bharti should be hugely profitable because that’s the time it requires to rejig its costs,” said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.

In November 2010, the telco said it planned to prepay up to $900 million of the debt it raised while acquiring Zain in the current fiscal. Jhangiani said the company had already repaid debt of $415 million during the December quarter and added the rest would be paid up in the current quarter.

“Bharti’s consolidated Ebitda margin is down to 33.8% from 39.8% a year earlier weighed down by Africa, but what must be noted is that it has remained flat when compared to the July-September 2010, signs that performance has been stabilising over the past two quarters,” said a Mumbai-based analyst with a brokerage house who declined to be named.

The mobile operator also said it had finalised infrastructure contracts for its African operations with three network vendors—Ericsson, Nokia Siemens and China’s Huawei. ET had first reported this in November 2010 while adding the contracts were likely to be for five years and would be worth upwards of $3 billion.

The telco, which has over 42 million customers in the Africa, is targeting 100 million users by 2012, and the network deal will also see a significant number of its employees in Africa move to the rolls of the three vendors.

While only three out of every 10 people own a mobile phone in Africa compared with seven in India, Bharti’s primary challenge will be to replicate its highly successful ‘minutes factory’ model, which involves low tariffs and high usage, in that continent.

“We are confident of profitability (in Africa). You will see in the next few quarters a very healthy improvement in both revenue as well as Ebidta,” Manoj Kohli, Bharti Airtel CEO (International) and Joint MD, said. Its competitors in Africa have accused the company of triggering price wars in as many as 10 of the 16 countries it operates in that continent.

But Kohli said the company was only rebalancing tariffs since the erstwhile Zain had an unsustainable premium. “We are not there for tariff war, we will maintain the prices. We will definitely issue some schemes which are affordable. Our objective is to provide affordability in Africa,” he added.

Wireless customers in India and South Asia grew 7% on a quarter-on-quarter basis to cross the 157 million mark. In total, the telco has just under 200 million mobile customers and an user base of close to 208 million that includes its internet and digital TV subscribers.

India’s traffic clocked 205,018 million minutes during the second quarter, up 4% q-o-q and 33% year-on-year, an indicator of high usage patterns despite most customer additions being in rural India. Kapoor also highlighted that the company’s non-voice revenues from mobile services were up to 13.8% from 11% in the same quarter last year.

Non-voice revenues are set to increase further as the company plans to roll out its newly-launched 3G services to cover 40 cities by March and further expand this to 1,500 cities and towns within the next 12 months.

Third-generation services, which include high-speed internet, video conferencing on mobile, and interactive gaming among other services, are slated to improve data revenues of operators here, who currently depend on voice calls for close to 90% of total revenues.

Despite the optimism, there are several blips in Bharti’s performance in its domestic market. First, the average revenue per user (ARPU) per month was down by about 2% to Rs198 in December 10 from Rs202 in September ‘10. On a year-on-year basis, ARPU shrank 14%. However, ARPUs for all telcos have been on the decline for the past couple of years.

Churn for Q3 was 7.8% as against 5.9% in July-September ‘10 while Bharti’s wireless market share in India slumped to 20.3% in December ‘10, its lowest in years, from 22.6% for the period ended December ‘09.

Also Read

Vedanta appoints woman CEO for Africa operations

Bank of Baroda to shut down South Africa operation

Holding co for Bharti Airtel’s Africa operations eyes IPO to unlock value

Bharti Airtel mulls global listing of subsidiary BAIN; move to pave way for listing of Africa operation

Bharti Airtel considering exits, stake sales at some Africa operations

Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links

Follow us on

Download et app

Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service