Bharti Airtel's quarterly profits nosedive; shares fall 6.6%

NEW DELHI: Shares of Bharti Airtel fell by 6.6%, their biggest intra-day decline since May 2010, after the company failed to meet street estimates of earnings growth, and posted its eighth consecutive drop in quarterly profits.

The net profit of the country's largest telco nosedived 22% to 1,011 crore because of lower use of mobile phones by customers, falling revenues per subscriber, as well as higher tax and interest outgo. The company's revenues rose 17% to 18,477 crore.

"The results are subdued. EBITDA margin and profit numbers are disappointing," said Jagannadham Thunuguntla of SMC Global, a broking firm.

Despite raising call rates by 20% and adding 25 million users, Bharti's profits from Indian operations fell 30% to 1,270 crore as customers cut phone usage by 7% and monthly average revenue per user ( ARPU) fell 6% to 187 from 199 a year ago.

Analysts said Bharti's profitability will be under pressure. "New users are pre-paid, low-volume subscribers who will be a drag on average minutes of usage and ARPUs," said Shiv Putcha of Ovum Consulting.

The losses of African operations fell to 260 crore for the December quarter from 525 crore a year earlier. Revenues grew 16% to 5,358 crore but ARPU fell to $7.10 per month from $7.30 per month, a year ago.

Bharti Airtel move to hike tariffs by 20% last year appears to have backfired as the company has registered a 7% decline in the average monthly minutes used per customer to 419 when compared to 449 minutes a year ago.

India's largest operator by revenues and profits also saw a mere 0.8% sequential growth in traffic or total minutes carried on its network during the festival season, taking analysts by surprise.

"Idea Cellular had registered a 7% sequential growth during the same period. After the 20% hike it tariffs, we must watch how traffic volumes pan out for Bharti going forward," said Bhavesh Gandhi, telecom analyst, India Infoline

According to the telecom head of Mumbai-based brokerage firm, the tariff hikes had not 'led to better times for the company'. "In the September 2011 quarter, Bharti Airtel had seen de-growth in overall minutes on a sequential basis for the first time despite adding close to 4 million new customers in India.

This has not improved in the December quarter," this executive, who declined to be quoted, added.

But Bharti Airtel's chief financial officer B Srikanth blamed higher interest costs and tax provisions for missing analysts estimates and posting a bigger then expected 22% drop in quarterly profit to 1,011 crore, when compared to 1,303 crore a year earlier.

"The average tax rate in India was 25.4% in December 2011 when compared to 14.4% the previous year. The tax outgo increased by 222 crore - the tax concessions on infrastructure in most states is drawing to an end," he said.

An analysis of Bharti's financials also reveals that a sharp increase in selling and administration (SG&A) cost may have contributed significantly to its quarterly profit fall.

Africa provides silver lining

Bharti's Africa operations, acquired from Kuwait's Zain in a $9-billion debt-funded deal in 2010, has provided a silver lining for the company.

Africa, which had been a drag on Bharti's financial has registered its first operating free cash flow in the quarter ended December 2011. Losses narrowed to 260 crore in December 2011 compared to 525 crore a year earlier. Revenues grew 16% to 5,358 crore.

"The peak capex is behind us and we will achieve our fiscal 2013 goals ($5 billion in revenues and $2 billion in EBITDA)," Manoj Kohli, Bharti's chief executive for international operations said.