Airtel: Strong show at India operations

Currency losses in Africa business and spectrum costs impact net profits

While operational performance was aided by India performance, higher spectrum costs and foreign exchange (forex) losses dented the June quarter performance of Bharti Airtel. Revenues from India, constituting 75 per cent of the overall revenue, were up 10 per cent year-on-year, largely due to volume gains from voice and data. While realisations on voice and data were down four-13 per cent y-o-y, voice volumes were up 8.3 per cent, while the metric on the data front saw an increase of 55 per cent.

Analysts, however, say voice realisations have stabilised with sequential improvement of 0.7 per cent, a first in nearly seven quarters. Data average revenue per user grew 11.6 per cent to Rs 202 in the June quarter, while data as a percentage of mobile revenues continued to rise from 23.3 per cent in the March quarter to 23.7 per cent in the June quarter.

Africa revenues at $935 million were up a muted 3.8 per cent, impacted by weaker African currencies such as Nigerian naira. Consolidated revenues at Rs 25,546 crore were in line with Bloomberg consensus estimates of Rs 25,541 crore.

The strong India operating performance helped the overall operating profit margins improve to 37.5 per cent, up 270 basis points y-o-y. India margins at 42.8 per cent were among the highest over the past few years. Consolidated operating profit at Rs 9,591 crore was up 16.4 per cent y-o-y and higher than consensus Bloomberg estimates of Rs 9,194 crore.

Despite the good show, net profit declined 31 per cent to Rs 1,462 crore. This was, however, better than consensus estimates, which pegged it at Rs 1,360 crore. What prevented the operational performance from percolating down to the net profits were forex losses and higher spectrum costs. The company said it had forex loss of Rs 750 crore due to the devaluation of the Nigerian currency. Nigeria is the biggest market for Bharti Airtel's Africa operations.

On the data front, ahead of Reliance Jio's launch and to improve data volumes, the company had reduced data benefits on pre-paid packs by up to 67 per cent. The move was to increase usage for existing customers and bring new data users into the network. How the competitive scenario plays out after the launch of Reliance Jio, currency movement in Africa, and bidding in the upcoming auctions will decide the outlook for the stock.