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Bharti Airtel net up 13%, but cautious about future

BS Reporter  |  New Delhi 

In a first, company warns growth may face short-term impact.

Bharti Airtel, the country’s leading operator, posted a net profit of Rs 2,321 crore in the second quarter ended September 30 this year, which represents a 13 per cent increase over the same quarter last year. The net profit last year was Rs 2,046 crore.

However, perhaps for the first time, the company gave a cautious warning on the future, with Bharti Group Deputy CEO saying it might face a short-term impact on profit growth. After announcing the results, Gupta said: “With this competitive intensity and irrational pricing in some pockets, it is possible in the short-term we could see some impact on the profit growth.” The warning was not taken very well by the markets, with the stock closing at Rs 292.15, plummeting by 6.38 per cent and bringing even other stocks down on BSE.

The company’s revenues increased by 9 per cent to Rs 9,845 crore in the quarter ended September 30, compared with Rs 9,020 crore in the previous year. While mobile services continued to contribute 82 per cent of the revenues, the company’s market share fell only marginally from 24 per cent in June to 23.5 per cent in September-end with 110 million customers.

The management put up a brave face when asked whether a price war was imminent. “We will be competitive, (but) there is no reason why we should match always the lowest common denominator. The company would emerge stronger from the challenges,” CEO Manoj Kohli said.

But just a few hours after the results’ announcement, Bharti decided to take its competitors head-on by introducing a one-second pulse plan to its subscribers. (see box). Under the ‘Freedom Plan’, subscribers would be charged 1 paise per second for all local and STD calls to the same network and 1.20 paise per second for local and STD calls to other networks.

Analysts, however, gave a thumbs-down to Bharti’s and pointed out that there were many key areas of concern. For one, the total mobile minutes on the network grew by only 2 per cent for this quarter over the previous quarter ended June. This, they said, was one of the worst growth of minutes. In contrast, the company’s total mobile minutes in the quarter ended June grew by a healthy 7.6 per cent over the previous quarter ended March 2009.

“The company has always said that it was not the average revenue per user (ARPU) which concerns them but the total minutes of usage. As long as this grows, there is no issue. Now that is under strain, primarily because the competition has made a dent,” a senior analyst said on condition of anonymity.

Angel Broking Vice-President (Research) Vaibhav Aggarwal said: “ARPU and minutes of usage (MoUs) are expected to come down, not just because of intense competition but also because of Bharti’s rural operations. There will be some impact on margins in the coming quarters, but Bharti would perform better than the industry.” ARPU continued to fall to Rs 252 this quarter from Rs 278 in the previous quarter — a fall of over 9 per cent. So did the average MoUs per user, which fell to 450 minutes this quarter from 478 minutes in the previous quarter.

However, the company was able to maintain its Ebitda (earning before interest, taxes, depreciation and amortisation) margin at 42.1 per cent this quarter — a slight improvement over 41.8 per cent in the previous quarter, which clearly showed some deft cost-control efforts.

But analysts and experts said the next few quarters could be tough. With number portability beginning from December-end, Bharti and other incumbents with a large percentage of stable post-paid customers who provide high ARPUs would be under attack from competitors. The company’s pre-paid monthly churn rate went up from 3.5 per cent in the quarter ending June to 4.6 per cent in the latest quarter — reflecting the impact of new players who are trying to nibble away at existing companies by playing the tariff game.

‘Africa remains a target’
After the unsuccessful attempt to strike a deal with South Africa’s player MTN, Bharti would keep looking out for opportunities.

“Our focus is on emerging markets, where penetration is low. Thus, Africa also remains a target,” Gupta said. “We will look at Zain Telecom, if there is an opportunity. But, as of now, there is nothing on the horizon.”

First Published: Sat, October 31 2009. 00:54 IST