Bharti Airtel headed for first loss in 60 quarters on falling revenue

After reporting Rs 3.06 billion consolidated net profit for the December quarter, Bharti Airtel could end up posting a loss in the March quarter, a first in 60 quarters (or 15 years) on falling revenue and rising costs. The last time the firm reported a loss was in the December 2002 quarter, when the figure came in at a negative Rs 70.70 million. What compounds the matter is a seasonally weak quarter for its Africa operations that had shown a sharp improvement in profits at the operating level in the last few quarters.
 
Falling tariffs in its India business, brought on by Reliance Jio's January offering, is the single biggest reason for the dismal show. A rush to grab more subscribers from smaller operators had added to the pressure on average revenue per user (ARPU). Data average revenue per megabyte of the incumbents is estimated to decline by 22 per cent sequentially and 86 per cent, year on year, in Q4 FY18  due to the continued dip in pricing of data packs amid the entry of a new player,  according to Hetal Gandhi, director, CRISIL Research.
 
This, coupled with a cut in international termination rates, will lead to a sharp decline in revenue by 21 per cent over the year-ago quarter and 6 per cent on a sequential basis for Bharti Airtel's wireless business in India. Further, higher network and marketing costs are expected to translate into a loss. Analysts at Kotak Institutional Equities expect the loss to be about Rs 3.8 billion in the quarter, as compared to a similar profit in the year ago quarter.

The outlook in the near term is also expected to be muted. Analysts at Nomura said a 7-15 per cent effective cut in ARPUs of top-selling bucket plans of Reliance Jio and incumbents in January, the regulator's ruling on predatory tariffs and exiting operators' 10 per cent revenue market share is still up for grabs, the risk of further tariff cut over the next few quarters had increased, implying a weaker near-term earnings outlook .  An improvement in the sector was expected at the end of FY19, led by consolidated industry structure, better pricing power and data usage, with greater price in-elastcity, said Harsh Jagnani, vice-president and sector head, corporate ratings, ICRA. 
 
While ARPU recovery is some way off, near-term catalysts for the stock continues to be deleveraging moves through the asset monetisation route, which includes stake sale in the tower and direct-to-home businesses and listing of the holding firm that controls its Africa operations.