Africa operations drag down Bharti Airtel's Q3 profit 41%
NEW DELHI: Bharti Airtel, Indias largest mobile phone operator, reported a bigger than-expected 41% drop in quarterly profit weighed down by its Africa operations and foreign exchange losses, even as its management was upbeat about future prospects.
Despite being involved in a price war in several African countries, the telco said its revenues from the continent increased nearly 9% in the three months ended December 2010 compared with the previous quarter ended September 10, proof that its turnaround strategy is yielding results.
Bharti also said it had increased revenue market share in Africa by 1% in the December quarter, without divulging details. The Sunil Mittal-promoted telco, which is 32% owned by SingTel, had acquired the African assets of Kuwaits Zain in a $9-billion deal last year, making it the fifth-biggest mobile operator globally in terms of customers.
This marks the fourth consecutive quarter of Bharti reporting a decline in profits. Its rival GSM operator in India, Idea Cellular, last week reported a higher-than-expected 43% jump in third-quarter net profit despite tariff pressure in the ultra-competitive 14-player domestic market.
Bhartis quarterly profit nosedived 41% to Rs 1,303 crore from Rs 2,195 crore for the three months ended December 10 on account of a one-off foreign exchange loss of Rs 151 crore and Rs 341-crore rebranding costs combined with a Rs 80-crore increase in spectrum usage costs.
Without these exceptional costs, net profit would have increased 10% on a quarter-on-quarter basis and flat on a year-on-year basis, Bharti CFO Manik Jhangiani said.
Growing stability in domestic market
Endorsing this view, analyst Bhavesh Gandhi of IIFL Capital said, If you take out the one-off branding ! expenses and foreign exchange losses, their net profit may not look as depressed as it appears. Their top line is also largely in line with our estimates.
The companys sales in India showed healthy gains of nearly 14% for the quarter ended December 10 compared with the corresponding period in the previous year, Sanjay Kapoor, CEO (India and South Asia), said. Bhartis performance reflects growing stability in the domestic market, after operators margins and profits had been brutally reduced in previous quarters by savage price wars.
Sales jumped 53% to Rs 15,756 crore in the third quarter. Earnings before interest, tax, depreciation and amortisation, or Ebitda, a key indicator of profitability, was up 22% to Rs 4,982 crore from Rs 4,082 crore a year earlier, Jhangiani added.
But comparing the results for the December 10 quarter to the same period previous year may not provide the complete picture since latest figures include its Africa operations. Zains results have been reflecting in Bhartis performance only for the last two quarters.
The companys shares fell over 3% as soon as the results were announced, but the markets wiped out these losses to close 2.75% up at Rs 323.25 after analysts gave a thumbs up to its future prospects due to launch of 3G services in India and improved performance in Africa.
My sense is on a three-year horizon, Bharti should be hugely profitable because thats the time it requires to rejig its costs, said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.
In November 2010, the telco said it planned to prepay up to $900 million of the debt it raised while acquiring Zain in the current fiscal. Jhangiani said the company had already repaid debt of $415 million during the December quarter and added the rest would be paid up in the current qu! arter.
Bhartis consolidated Ebitda margin is down to 33.8% from 39.8% a year earlier weighed down by Africa, but what must be noted is that it has remained flat when compared to the July-September 2010, signs that performance has been stabilising over the past two quarters, said a Mumbai-based analyst with a brokerage house who declined to be named.
The mobile operator also said it had finalised infrastructure contracts for its African operations with three network vendorsEricsson, Nokia Siemens and Chinas Huawei. ET had first reported this in November 2010 while adding the contracts were likely to be for five years and would be worth upwards of $3 billion.
The telco, which has over 42 million customers in the Africa, is targeting 100 million users by 2012, and the network deal will also see a significant number of its employees in Africa move to the rolls of the three vendors.
While only three out of every 10 people own a mobile phone in Africa compared with seven in India, Bhartis primary challenge will be to replicate its highly successful minutes factory model, which involves low tariffs and high usage, in that continent.
We are confident of profitability (in Africa). You will see in the next few quarters a very healthy improvement in both revenue as well as Ebidta, Manoj Kohli, Bharti Airtel CEO (International) and Joint MD, said. Its competitors in Africa have accused the company of triggering price wars in as many as 10 of the 16 countries it operates in that continent.
Despite being involved in a price war in several African countries, the telco said its revenues from the continent increased nearly 9% in the three months ended December 2010 compared with the previous quarter ended September 10, proof that its turnaround strategy is yielding results.
Bharti also said it had increased revenue market share in Africa by 1% in the December quarter, without divulging details. The Sunil Mittal-promoted telco, which is 32% owned by SingTel, had acquired the African assets of Kuwaits Zain in a $9-billion deal last year, making it the fifth-biggest mobile operator globally in terms of customers.
This marks the fourth consecutive quarter of Bharti reporting a decline in profits. Its rival GSM operator in India, Idea Cellular, last week reported a higher-than-expected 43% jump in third-quarter net profit despite tariff pressure in the ultra-competitive 14-player domestic market.
Bhartis quarterly profit nosedived 41% to Rs 1,303 crore from Rs 2,195 crore for the three months ended December 10 on account of a one-off foreign exchange loss of Rs 151 crore and Rs 341-crore rebranding costs combined with a Rs 80-crore increase in spectrum usage costs.
Without these exceptional costs, net profit would have increased 10% on a quarter-on-quarter basis and flat on a year-on-year basis, Bharti CFO Manik Jhangiani said.
Growing stability in domestic market
Endorsing this view, analyst Bhavesh Gandhi of IIFL Capital said, If you take out the one-off branding ! expenses and foreign exchange losses, their net profit may not look as depressed as it appears. Their top line is also largely in line with our estimates.
The companys sales in India showed healthy gains of nearly 14% for the quarter ended December 10 compared with the corresponding period in the previous year, Sanjay Kapoor, CEO (India and South Asia), said. Bhartis performance reflects growing stability in the domestic market, after operators margins and profits had been brutally reduced in previous quarters by savage price wars.
Sales jumped 53% to Rs 15,756 crore in the third quarter. Earnings before interest, tax, depreciation and amortisation, or Ebitda, a key indicator of profitability, was up 22% to Rs 4,982 crore from Rs 4,082 crore a year earlier, Jhangiani added.
But comparing the results for the December 10 quarter to the same period previous year may not provide the complete picture since latest figures include its Africa operations. Zains results have been reflecting in Bhartis performance only for the last two quarters.
The companys shares fell over 3% as soon as the results were announced, but the markets wiped out these losses to close 2.75% up at Rs 323.25 after analysts gave a thumbs up to its future prospects due to launch of 3G services in India and improved performance in Africa.
My sense is on a three-year horizon, Bharti should be hugely profitable because thats the time it requires to rejig its costs, said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.
In November 2010, the telco said it planned to prepay up to $900 million of the debt it raised while acquiring Zain in the current fiscal. Jhangiani said the company had already repaid debt of $415 million during the December quarter and added the rest would be paid up in the current qu! arter.
Bhartis consolidated Ebitda margin is down to 33.8% from 39.8% a year earlier weighed down by Africa, but what must be noted is that it has remained flat when compared to the July-September 2010, signs that performance has been stabilising over the past two quarters, said a Mumbai-based analyst with a brokerage house who declined to be named.
The mobile operator also said it had finalised infrastructure contracts for its African operations with three network vendorsEricsson, Nokia Siemens and Chinas Huawei. ET had first reported this in November 2010 while adding the contracts were likely to be for five years and would be worth upwards of $3 billion.
The telco, which has over 42 million customers in the Africa, is targeting 100 million users by 2012, and the network deal will also see a significant number of its employees in Africa move to the rolls of the three vendors.
While only three out of every 10 people own a mobile phone in Africa compared with seven in India, Bhartis primary challenge will be to replicate its highly successful minutes factory model, which involves low tariffs and high usage, in that continent.
We are confident of profitability (in Africa). You will see in the next few quarters a very healthy improvement in both revenue as well as Ebidta, Manoj Kohli, Bharti Airtel CEO (International) and Joint MD, said. Its competitors in Africa have accused the company of triggering price wars in as many as 10 of the 16 countries it operates in that continent.
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