Bharti Airtel: All's well that ends well?

Total network minutes rise 5% q-o-q but revenue per minute down 1.9%

After losing revenue market share and pricing power all through FY12, Bharti Airtel has ended the year on a positive note. While consolidated revenue growth of 15 per cent in Q4 has beaten market expectations, Bharti continues to struggle on profitability. The management has blamed the 28 per cent year-on-year fall in net profit on higher 3G payouts, forex losses and intense competition.

More than absolute numbers, what has cheered the market is the growth in network minutes and profit margins. In the fourth quarter, total traffic on the network went up by five per cent over Q3 to 230 billion minutes. The company has expanded its operating profit margin to 34 per cent from 33.8 per cent in the December quarter and 33.6 per cent a year ago. Barclays is of the opinion Bharti’s customer acquisition strategy has started to play in its favour, as the increase in traffic minutes of 11.2 billion over the December quarter surpassed the 10.3 billion minutes increment reported by Idea. After having lost revenue market share due to rise in rates since Q2, it had corrected prices in some markets and given discounted minutes to new subscribers, which had helped shore up total network minutes. In a conference call with analysts, the management had conveyed that competitive intensity is unlikely to abate in FY13.

It also had to increase spends to acquire new subscribers. But the subscriber additions and growth in minutes did not result in commensurate improvement in profits. Analysts say this is because fresh subscriber additions are now coming from semi-urban and rural areas where rates are lower. This trend is reflected in the steady fall in average revenue per user, down to Rs 189 in Q4 FY12 from Rs 194 a year ago. Revenue per minute, a key lever of profitability, is down 1.9 per cent sequentially to 43.8 paise.

The other businesses have also been lacklustre, says Angel Broking’s Ankita Somani. Revenues from passive infrastructure and enterprise businesses have shown a sequential decline, while digital television business has grown. The share of data as a percentage of total revenues is up 10 basis points to 14.4 per cent. The Africa operations have also turned in a good performance with Q4 revenues growing 16 per cent to $1 billion. While for the full year, revenues from Africa are up 43.7 per cent to $4.1 billion, operating profit margins expanded by 100 basis points to 27.8 per cent from 26.7 per cent in the December quarter. Bharti’s management believes this data holds a lot of promise in these markets where the average age is just 18 years.