Debt burden, lower tax holiday benefits skewer Bharti

Bharti Airtel, the largest mobile telephony operator in the country, reported a 28% fall in bottomline for the three months to June 30, compared with the year-ago period, impacted by a steep rise in interest and tax burden.

Net profit fell to Rs1,215 crore even through revenue rose 38.6% to Rs16,975 crore, driven by a larger customer base, which stood at 170 million at the end of June.

“Bharti Airtel has started this fiscal year on a stable note. Revenue growth has been steady across all geographies, with Africa recording a healthy sequential growth of approximately 6%, and annual growth of 21%,” Bharti chairman and managing director Sunil Bharti Mittal said.

“In India, the company’s efforts in the area of cost efficiencies have helped arrest the margin decline,” said Mittal.

Bharti, which had debt of about $13.42 billion (Rs60,014 crore at current exchanges rate) at the end of June, incurred financing cost of Rs925 crore during the quarter, up 38% from `670 crore a year ago when debts were a tad lower at $12.92 billion.

“Net profit missed our and consensus estimates mainly due to higher net interest expenses and higher tax,” Goldman Sachs analysts Sachin Salgaonkar, Piyush Mubayi and Paras Mehta wrote in a note to clients on Wednesday.

Bharti said it had an effective tax rate of 29.9% for the June quarter, primarily due to “reduction in tax holiday benefits in India.”

Even as it managed to keep revenue growth momentum by adding more subscribers, Bharti’s profit margins declined during the quarter on account of slippages in key performance indicators (KPIs) of the operator such as minutes of usage (MOU) by subscribers and average rate per minute (ARPM) earned by the company.

“Bharti results were mixed bag with revenues almost inline but operating margins came in lower than expected,” said telecom analyst Srishti Anand of Mumbai-based Angel Broking

“This was because KPIs like MOU and ARPM slipped marginally to 445 minutes and 42.8 paise per minute.”

A year ago, Bharti had recorded 480 minutes of usage per subscriber and an ARPM of 44.9 paise per minute.

The company, which launched high speed 3G data service a few months ago, saw a marginal decline in its revenue from non-voice services. From about 15% at the end of March, the share of non-voice revenues declined to 14.6% at the end of June, which the Goldman Sachs analysts saw as a disappointment.

In comparison, Idea Cellular, India’s third largest mobile operator by revenue market share, managed to defend its non-voice revenue contribution, they said.

On the positive side, the upward revision in call tariffs kicked off by Bharti last month is expected to have a positive impact on telcos’ profitability in the medium term.