Bharti net slumps 22% as users call less

Despite tariff hikes and easing competition, Bharti Airtel’s net profit and earnings before interest, depreciation, taxes and amortisation (Ebidta) margin continued to tumble on rising costs and tax rates.

The largest mobile operator, which announced its October to December quarter results on Wednesday, reported a 22% decline in its consolidated net profit to Rs 1,011 crore from Rs 1303 crore in the same quarter last year.

The company’s Ebidta margin slipped 150 basis points sequentially to 32.2% from 33.7% last quarter. 

Analysts Bhuvnesh Singh and Vaibhav Dhasmana of Barclays Capital said they were surprised by the quarter-on-quarter (qoq) margin decline in an environment of pricing improvement.

“We note that this is a largely fixed cost business which is exhibiting strong price improvement and continuous revenue growth. In this environment of declining competition, margins should have exhibited a more positive trend. However, the company has disappointed on margins for the third consecutive quarter,” they wrote in their note to investors on Wednesday.

Most analysts have been taken aback by meagre 0.8% sequential rise in minutes despite a 3.2% growth in the company’s revenue per minute (RPM) indicating negative elasticity due to tariff hikes. Its closest rival Idea cellular minutes growth for the same period rose 7.3%. 

One of the reasons, Bharti’s minutes could have slipped is reduction in free minutes. 

Sachin Salgaonkar, Piyush Mubayi and Paras Mehta of Goldman Sachs said the divergent trend of Bharti’s cellular key performance indicators (KPIs) to Idea’s KPIs show Bharti was witnessing negative elasticity.

“We believe the selective tariff adjustments by Bharti in the past few months on a circle-by-circle basis indicated that the company was struggling with overall minutes’ growth,” said the Goldman Sachs’ analysts.

The trio believes unlike Idea, Bharti also appears to have lost revenue market share. Even its data revenue as percentage of total revenues lagged behind Idea’s, with a 20 bp qoq dip compared to 50 bp qoq for Idea.

The company’s India and South Asia mobile operations in the last quarter grew by 4% on 3.2% qoq increase in average rate realisation (ARR) to 44.6 paise, reversing the declining trend in Arpus that was up 2.2% qoq compared to a decline of 3.7% in the second quarter of the current fiscal. Interestingly, the jump in the Arpus has come after 24 quarters.

Morgan Stanley’s Vinay Jaising and Vanessa A D’souza see this as positive signal for the time to come.

“After 10 quarters of tariff declines, domestic average revenue per minute (ARPM) grew 1.3% in the previous quarter and now again grew 3.2% in the third quarter of fiscal 2013. In our view, this could be partly due to higher 3G revenues and also tariff hikes in July 2011. The overall impact of tariff hike by Bharti should be felt in the next six to twelve months and we would not be surprised if ARPMs edge up another 1-2% max from current levels,” they wrote in their report.

However, the pace of growth in Indian and South Asia region slowed due to lower growth in minutes of usage (MoUs) at 1.1%.
African mobile operations registered strong sequential revenue growth of 13.9% on account of 3% qoq growth in MoUs backed by 2.5 million qoq subscriber additions and due to flat ARR of US cents 5.7.