Bharti Airtel Q2 net profit down 29 pc on forex losses

Telecom operator Bharti Airtel has posted its fifteenth consecutive drop in net income in the September quarter over losses in its Africa operations and foreign exchange losses. The company reports better margins in India driven by an uptick in average consumer billings.

Telecom operator Bharti Airtel has posted its fifteenth consecutive drop in net income in the September quarter over losses in its Africa operations and foreign exchange losses.

The Sunil Bharti-led company reported a net income of Rs 512 crore for the July-September months, a drop of 29 per cent from the year-ago period. The losses would have been lower but for a dollar that has strengthened in the quarter gone by. Forex losses for the three months were Rs 342 crore.

The Airtel management sees strong revenue growth coming from the return in pricing power in India, where it counts over 75 million as customers. Its average revenue per user (ARPU) increased by eight per cent per cent to Rs. 192 a month in India.

Airtel will continue to focus on better realisations. "We are obsessed to get the right quality of customers and obsessed to reduce churn. We are focused on ARPU and operating cost," Gopal Vittal, CEO of Bharti Airtel's India operations, told reporters in New Delhi.

The company saw a 9.9 per cent expansion of revenues to Rs. 21,324 crore in the quarter, driven by its data business and voice realisation improvement. Only a few days back, Idea Cellular which has emerged as India's fastest growing telecom operator when it reported revenues of Rs 6,323 crore for the September quarter and its net profits grew by 80 per cent to Rs. 448 crore from the same period of 2012/13.

For the past few quarters, Airtel has seen significant rise in its data customers. In the September ended quarter, Airtel had 50.6 million data customers out of which eight million were only 3G users. Idea in the same period has 33.6 million 2G and 3G data subscribers. "Mobile Internet is now a major engine of growth for growth across all geographies," said Sunil Mittal, who chairs Bharti Airtel, in a statement.
Indian telecom operators have seen margins improve in the past one year. Airtel's operating margins, measured by EBITDA, went up from 30.6 per cent to 32 per cent. Idea Cellular improved the same margin by four percentage points in a year to 27.6 per cent. EBITDA is short for earnings before interest, depreciation, tax, depreciation and amortisation.

Is Africa hurting Mittal? "We do not expect inspiring growth from the Africa business. Notwithstanding the management's guidance for improvement in business in FY14E, we remain sceptical of the growth prospects in the near term as growth in major African countries has slowed down significantly and vigorous competitive activity is eroding the margins," analysts Naveen Kulkarni and Vivekanand Subbaraman of Phillip Capital said in a recent report.

Airtel's Africa revenue went up by 16.1 per cent for the September quarter, and there was a marginal improvement in EBITDA margins, from 25.3 per cent to 25.7 per cent. "The revenue growth in Africa reflects the inherent potential in the world's most promising business continent," Mittal said.

Airtel's results come a day after British telecom giant Vodafone Plc sought approval from India's Foreign Investment Promotion Board (FIPB) to invest Rs 10,141 crore to wholly own its Indian subsidiary, increasing its stake from current 64.38 per cent, valuing the subsidiary at Rs 28,740 crore.

It might be investors worry, that the deal did not fetch the exiting investors the desired results. A February 2012 deal by Ajay Piramal-promoted Piramal Enterprises to buy 5.5 per cent stake in Vodafone India for Rs 3,007 crore had valued Vodafone India at Rs 54,373 crore. Earlier in 2011 Piramal Enterprises had paid Rs 2,893 crore for another 5.5 per cent stake in the entity. Other investors in the Vodafone unit are health-care chain Max Group's Analjit Singh, infrastructure financier IDFC, and some independent investors.

Given the current valuation, Vodafone India is one-fifth of Airtel's valuation of Rs 1.37 trillion (1 trillion is 100000 crore), and about half of that of Idea. In Airtel too, SingTel increased its stake to 32.34 per cent, a 1.58 percentage point increase in a deal worth Rs 1,859 crore.

The Vodafone deal might just mark the new beginning of foreign direct investment flowing into the telecom industry. And quarters like this, might just help Airtel to build on its valuation.