MTN's H1 numbers indicate stress for Bharti in Africa

MTN's growth suggests Bharti may find it tough to crack Nigeria, a critical market

Bharti entering Africa through its acquisition of Zain was supposed to be a game-changer of sorts because the telecom player was expected to repeat its India success there. However, Bharti's African safari has not quite played out the way it had anticipated. It is difficult to assess the real prospects and issues the company is facing because Bharti does not give financial performance in each of the African countries it operates in. As a result, analysts have been attempting to extrapolate from the performance of its competitors such as MTN and Safaricom.

Bharti's biggest competitor continues to be MTN, which operates in six of the 17 markets Bharti is present in. In the previous quarter, there was news that some regulatory changes had happened in key markets such as Nigeria, which would benefit challengers like Bharti. In the first quarter, Bharti's revenues from Africa fell 0.4 per cent annually to $1 billion, driven by a 25 per cent fall in revenue per minute, even though usage grew by 32 per cent. According to Deutsche Bank Markets Research, voice revenue trends for Bharti and its peers, such as Millicom, have slowed as tariffs fell due to competition and a reduction in interconnect charges. Operating profit has remained range-bound for the last eight quarters at $283 million, claim analysts. Bharti has guided for high-single-digit revenue growth for FY14.

However, analysts say that Bharti's other markets are relatively small and the market that is critical in terms of size and performance is Nigeria. According to Kotak Institutional Equities, the financial performance of MTN in the first six months of calendar 2013 suggests that the impact of the steep cut in interconnect charges in Nigeria has not impacted MTN much. The assumption was that Bharti would benefit as interconnect charges commanded by incumbents were slashed by the regulator. MTN reported a decent 5.3 per cent overall local-currency revenue growth in Nigeria in the first half compared to the same period in the previous year, despite the negative impact of an interconnect rate cut.

MTN Nigeria's incoming voice revenues declined 17 per cent in the same period and revenues excluding incoming-voice were up 8.3 per cent, driven by strong growth in outgoing voice as well as data revenues. Strong growth in MTN's outgoing traffic suggests that the company continues to defend its market share position in that market. It also added 7.8 million new subscribers in Nigeria in the first half. Kotak says: "Even as MTN's Nigeria OPM has come down from the past highs of 60 per cent-plus (and absolute Ebitda has barely grown) due to increased competition and associated tariff wars, we believe the company has only expanded its operating margin leadership versus its challengers." MTN's capex plans for Nigeria are also ahead of Bharti's plan for the entire African region. Analysts say Bharti has a tight balance to strike. Bharti's shares fell 5.5 per cent on Monday.