Bharti Airtel: African operations continue to be a drag

Bharti Airtel's India business showed moderate momentum whereas the African operations reported a slack on a sequential basis for the March 2014 quarter. In addition, the company's growth in the domestic wireless network minutes remained lower than what its peer Idea Cellular reported on Monday. Considering a lacklustre performance, Bharti's stock may come under pressure once the markets open on Wednesday.

Bharti's consolidated revenue for the March quarter grew by just 1.3% to Rs 22,219.3 crore on a sequential basis. The overall growth was dragged down by a 2.3% drop in the revenue from the African operations. And, while India business grew by 3.8% to Rs 12,083 crore, the growth was far lower than 6.5% sequential jump reported by Idea Cellular.

On the profitability front, Bharti's performance was in line with that of Idea. The margin at the level of operating profit before depreciation (EBITDA margin) for Bharti's domestic business expanded by 80 basis points to 34.9%. For Idea, margin rose by 60 basis points to 31.7%.

The growth in number of wireless minutes on Bharti's domestic business for the March quarter was significantly lower compared with Idea's numbers. User minutes for Bharti grew by 3.8% sequentially, much below Idea's growth of 8.6%.

The African operations continued to exhibit competitive pressure as reflected in 50 basis points sequential drop in EBITDA margin at 25.3%. On a positive side, the data traffic on its Indian network showed a sustained momentum. Data volume grew sequentially by 20% during the March quarter. Data revenue contributed 11.2% to domestic revenue compared with 6.5% a year ago.

While both Bharti and Idea have shown traction in data revenue, the intense competition is apparent from the fact that realisation per megabyte of data traffic fell sequentially for each of the player during the quarter. This means, it's all the more crucial for these players to increase data volumes in the coming quarters to compensate for the falling realisation. Which in turn means, cost of acquiring additional data volume in terms of advertising and promotion may go up significantly thereby impacting margins in the short term. The exact extent of this impact will depend upon how efficiently the operators can sell data related services to existing and new subscribers.