Bharti Airtel: Mixed bag

While key financials show improvement in Africa, India numbers disappoint.

Bharti Airtel’s fourth quarter results are a bit of a mixed bag. Analysts are not particularly happy with the Rs 1,400 net profit, as consensus estimates were at Rs 1,700 crore. Profit has taken a hit due to higher depreciation, as the company had undertaken capital expenditure in the previous quarter. Sequentially, net profit grew 7.5 per cent and net sales were up just 3.2 per cent.

Wireless revenues in India and South Asia were up 3.8 per cent sequentially, marginally lower than expectations. Despite this, analysts believe operating metrics are on track that there is no likelihood of a downgrade in revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda).

However, what has cheered the Street is the low decline in ARPU (average revenue per user) and average revenue per minute. Despite mobile number portability (MNP) coming into practice in the fourth quarter, Bharti Airtel’s ARPU has fallen 2.5 per cent sequentially to Rs 194 and ARPM (average revenue per minute) has fallen 2 per cent sequentially.

Analysts say this is not bad given the loss some other players have witnessed. However, at the operating level the company is seeing some stress and profitability will continue to suffer due to higher interest costs and depreciation.

The African operations have shown improvement, too. In the fourth quarter, Bharti added two million new customers, taking the total number of customers to 44 million. Africa’s revenues stand at Rs 4,180 crore, while Ebitda is Rs 1,100 crore. Ebitda margins have improved 130 basis points to 26.3 per cent, ahead of expectations of most analysts. Africa’s ARPUs declined 2.5 per cent sequentially to $7.2.

However, what is a matter of concern is the higher interest costs have eaten into profitability. A big positive has been the margin expansion in Africa despite muted headline growth. Even as the India headline numbers have come in marginally lower than expectations, the African story is beginning to yield returns. In a report, Religare Securities says while the stock may see some consolidation in the near-term, its overall stance on the telecom sector and Bharti is positive. Regulatory clarity and African turnaround will be key triggers for the stock.