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Bharti Airtel’s stock was up 1.9% to Rs 689.15 on a day when the BSE Sensex was down 1.18%; good numbers were the key reason. For the quarter-ended December 2006 (Q3), as per US GAAP, consolidated revenues were up 12.76% to Rs 4,912.9 crore, as compared with the quarter- ended September 2006 (Q2).

The positive aspect is the rise in consolidated EBIDTA (earnings before interest, depreciation, tax and amortisation) margins to 40.8% from 39.1% in Q2. Notably, the improvement in margins was seen across every business segment. For instance, mobile services (nearly three-fourth of revenues) saw its margins rise from 36.9% to 37.6% sequentially. While non-mobile segment (balance) saw a sharper rise to 37.9% from 33.9% in Q2.

At the operating level, while nearly all cost components grew faster (14.6%-29.6%) than revenue growth, two heads— network operating costs (up 1.91% to Rs 532.8 crore) and SGA expenses (down 3.82% to Rs 721.8 crore) — contributed in a big way. Overall EBIDTA grew 17.8% to Rs 2,005.5 crore over  Q2.

While improved operational efficiencies is one aspect. A good part of the contribution came from non-mobile services — broadband & telephone and (B&T) long-distance services. For instance, long-distance (18% of revenues) business typically has low variable costs and profitability is largely a result of the trend in tariffs and minute usage. Here, gross minute usage was up 21.7% to 5.49 billion minutes, which is one reason for the improvement in margins to 43% from 40.3% in Q2.

Likewise, B&T (12% of revenues) saw margins improve to 27% from 20.4% in Q2. Here, the improved margins mainly led a rise of 7.44% in average revenue per user (ARPU) to Rs 1,198 and 6.53% rise in customer base to 1.74 million; the gross minute usage was almost flat. The ARPU, in turn, was aided by higher contribution of broadband services, which is receiving enhanced focus.

In mobile services, ARPUs declined marginally by 2.51% to Rs 427. On the positive side, a rise of 3.63% in average minutes of use per customer to 467 minutes (up by 16 minutes), coupled with an 18.15% rise in customer base (by 4.91 million) to 31.97 million, provided the boost to margins. Here, total gross minute usage increased by 22.05% to 41.31 billion minutes.

Thereafter, profits were boosted by a gain of Rs 219.2 crore on account of derivatives and exchange fluctuation. Hence, instead of an interest charge of Rs 58.8 crore in Q2, Bharti reported net interest income of Rs 131.8 crore. The difference in accouting treatment is among key reasons for a lower net profit of Rs 1,033.34 crore (up 17.6% over Q2) as per Indian GAAP; Rs 1,215.13 crore (up 30.1% over Q2) as per US GAAP.

Going forward, Bharti is hiving off of its tower business, buying the submarine cable network system for $110 million, expanding into Sri Lanka, foraying into domestic direct-to-home and IPTV services, all of which augur well for the company. Given these initiatives and the robust growth in the Indian telecom market, Bharti Airtel should do well. At Rs 689.15 (PE of 31.3 times expected EPS of Rs 22 for 2006-07), it merits attention.

Cementing gains

Grasim’s businesses are concentrated largely in five areas — cement, viscose staple fibre (VSF), sponge iron, textile and chemicals. Hence, there’s always the risk of bad performance in one or more of its businesses pulling down profits. For the last few quarters, the company’s cement business has been clocking good gains, helping show a good growth rate.

For the quarter ending December 2006, Grasim’s net sales went up by 38.3% to Rs 2,279.39 crore. Net profit went up by 154.27% to Rs 411.58 crore. A certain increase in sales was met by a higher increase in profit, primarily because the operating margin went up substantially — up 29.22% from 19.35% in the same quarter last year.

The operating margins were spruced up by two things. Firstly, a higher net realisation from the company’s various products and cement prices during the quarter fetching an average of Rs 2,918 per metric tonne, up by 49% year on year. This is largely because of the increased infrastructure spending in the country. Similarly, VSF business fetched Rs 90,389 per metric tonne, up 24% year on year.

Second, expenditure for the quarter, at  21.38% to Rs 1,613.33 crore, did not go up as fast as net sales. This is a case of operating leverage. As any company produces more, fixed expenditure tends to remain largely the same, with only variable expenditure going up, leading to overall expenditure rising slower than the increase in production. The company made more of all its products, except caustic soda.

Cement has become the major driver of revenues at Grasim. In the quarter, cement was responsible for almost 59% of revenues and 62.1% of profit before tax. Also, higher dispatches through rail (up from 37% to 46%) helped partially mitigate escalating freight costs.

Going forward, analysts feel that the cement business of the company will continue to grow at a fast pace, largely because of the increase in housing and commercial projects as well as increased infrastructure spending. This should help Grasim become a more focussed company, with other businesses playing lesser role.