In a seasonally weak quarter, India’s largest mobile telephone services provider reported results broadly in line with expectations. While traffic volume and number of subscribers declined, the company managed to hold on to revenues it earns per minute. Goldman Sachs analysts say flat revenues per minute indicate declining competitive intensity. This comes on the back of companies curbing dealer commissions and focusing on profitability.
Though headline rates are up, analysts believe there is still discounting at the retail level, resulting in higher churn and lower voice realisations. However, the Bharti management expects rates to move upward and clarity to emerge after the auctions scheduled this month. The company’s chief executive for India/South Asia operations Sanjay Kapoor, in an investor conference call, said the current rates do not reflect the pricing pressures companies are likely to face and are bound to move up.
Though most analysts believe Bharti is in a better position than its competitors, regulatory uncertainty continues to be the biggest overhang on the stock, which slipped 0.9 per cent to close at Rs 271.10 on the Bombay Stock Exchange.
Given the seasonality, voice traffic was down two per cent as compared to four per cent for Idea. Bharti is less impacted by seasonality than its smaller competitor, as the latter has 55 per cent of its subscriber base in rural areas compared to Bharti’s 42 per cent, say Goldman Sachs analysts. Minutes of usage fell four per cent for Bharti compared to Idea’s five per cent. The company continues to focus on data, which as a percentage of revenues increased by 90 basis points (bps) to 5.2 per cent. This helped its non-voice revenues (messaging and VAS revenues fell) increase by 50 bps to 16.8 per cent. However, for these services to contribute to profitability, rates, especially on the 2G data plans, have to increase, believe analysts.
One-off gains
Bharti’s revenues were up four per cent sequentially due to a favourable order from the telecom appellate tribunal on inter-connect agreements. This resulted in a one-time revenue increase of Rs 586 crore. Adjusted for these, India revenues were down 1.4 per cent, while net profit was down 31 per cent quarter-on-quarter. Net profit was also pegged back due to higher interest costs, as well as a sharp jump in taxes (dividend distribution tax on dividend received from Indus). In line with the industry trend, the company, on the back of lower dealer commissions, was able to curtail its selling, general and administrative costs.
Good quarter for Africa biz
Bharti’s Africa operations performed better than expected, as the company managed to increase traffic volumes by 20 per cent, on the back of price cuts.
Though revenues per minute declined 15 per cent, higher traffic helped grow overall revenues three per cent.
An analyst with a foreign brokerage says the company managed to cut prices in a revenue-accretive manner. Lower access charges as well as network costs helped it post a 140-bps rise in Ebitda (earnings before interest, taxes, depreciation and amortisation) margins to 27.2 per cent.
