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Airtel escapes posting loss in Q1, but it's far from a safe zone

In the previous quarter, the telco saved itself from the profits of its earlier loss-making Africa operations and income of the towers arm. This time, the saviour turned out to be deferred tax gains.

twitter-logo Manu Kaushik   New Delhi     Last Updated: July 27, 2018  | 16:53 IST
Airtel escapes posting loss in Q1, but it's far from a safe zone

For the second consecutive quarter, telecom giant Bharti Airtel has managed to escape posting consolidated net loss. For the quarter ended June 2018, Airtel posted consolidated net profit of Rs 479.6 crore, a fall of about 22 per cent over the corresponding quarter last year.

In the previous quarter, the telco saved itself from the profits of its earlier loss-making Africa operations and income of the towers arm. This time, the saviour turned out to be deferred tax gains. By posting net profit for 15 consecutive years, the telco has proved some analysts wrong who have been pessimistic about Airtel since the entry of Reliance Jio. Still, on a standalone basis, the telco posted net loss of Rs 1,457.2 crore in the June ending quarter.

What does it mean for Airtel and the telecom sector? On Thursday, Airtel was dethroned by the Vodafone Idea Ltd, the newly merged entity that received final approval from department of telecom (DoT), as the largest telco in terms of subscriber base. For instance, Airtel's subscribers stood at 345.4 million in May 2018 whereas Vodafone Idea Ltd had 436.6 million subcribers in the same month.

While the tariff war triggered by Jio is not likely to subside anytime soon, Airtel is far from being in a safe zone. The next few quarters, if not years, are going to be even more critical because a prolonged war is going to hurt incumbents like Airtel while newcomer Jio can piggyback on the parent company RIL's other adequately profitable businesses.

Also Read:Bharti Airtel turns a surprise profit of Rs 97 crore in June quarter due to tax gains

Jio's ability to extend the tariff war - until it corners 50 per cent revenue market share by 2021 - is going to leave Airtel with little room for emerging from its troubles. Despite the hardships, Airtel is showing no signs of cooling-off. It reportedly plans to raise about $1 billion to refinance high-cost debt. So, that will be enough cash available for capex investments. Then, there are plans to divest stake in the African business to Warburg Pincus, one of the first marquee investors in 1990s, followed by a stock-market listing.

Airtel's biggest concern is falling ARPU (average revenue per user) in the telecom business. Airtel derives 70 per cent of its revenues from telecom. Other verticals include DTH, enterprise business, towers and broadband. In some analyst calls, the Airtel management has spoken about launching upgrade schemes for customers but it seems they haven't helped much. For instance, its overall ARPU for the June quarter was Rs 105 as compared to Rs 154 in the corresponding quarter last year.

Once a telecom bellwether, Airtel now finds itself fighting an uphill battle.

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