Bharti Airtel Q3 earnings: This time for Africa, but India operations must pick up
The company was able to convert a strong 9% sequential revenue growth into equally impressive 100-bps expansion in operating margin before depreciation.
Disappointed investors dumped Bharti's stock soon after the results announcement; the stock fell 6.6% at the end of Wednesday's session. It may remain under pressure in near-term since the company would take some more time to offset the impact of higher interest outgo and depreciation linked to the 3G expansion.
According to Bharti's management, operating margin shrank due to one-time provisions related to its Bangladesh operations and one-time expenses incurred in telemedia and enterprise divisions. Operating margin before depreciation contracted by 541 bps to 38.8% for telemedia services and by 457 bps to 16.9% for enterprise segment compared to the previous quarter.
However, considering a smaller proportion of revenues from these segments, analysts have expressed doubts over the profitability of its domestic mobile operations, which contribute more than half to the company's total revenue. Bharti's margin at the earnings before depreciation, interest, tax, depreciation and amortisation (EBITDA) fell by 150 basis points sequentially to 32.2% in the December 2011 quarter.
"The company's expense on networks and marketing has increased relative to its revenue. It might have not been able to pass on the increased cost to subscribers due to competitive pressure," says Dhananjay Sinha, co-head, institutional research, Emkay Global Financial.
Even after excluding the impact of other divisions, the margin of Bharti's domestic mobile division (which includes India, Sri Lankan and Bangladesh operations) improved by just over 20 bps to 33.8%. In comparison, Idea reported a more resilient performance in the December quarter.
The company was able to convert a strong 9% sequential revenue growth into equally impressive 100-basis points expansion in operating margin before depreciation.
A positive development is the gradual improvement in Bharti's African operations. Their proportion in revenue has increased to 45% from 42% a year ago on a much higher profitability, which expanded by 761 bps during the period.