bharti airtelNEW DELHI (Dow Jones)--Bharti Airtel Ltd. (532454.BY) Thursday said it rang up a 24% net profit rise in its first quarter, helped by a growth in its customer numbers, a foreign exchange gain and a tax write back.
But India's largest mobile phone operator by subscribers sounded a word of caution, saying the business environment in the world's fastest-growing telecom market is a challenging one due to stiff competition from existing players and new entrants.
This has led to a drop in key parameters such as average revenue per user and minutes of usage, the company said.
In the three months ended June 30, Bharti Airtel's net profit - according to U.S. accounting standards - climbed to INR25.17 billion from INR20.25 billion a year earlier.
Total revenue rose 17% to INR99.42 billion from INR84.83 billion after Bharti added an overall 8.55 million customers, its highest-ever for any quarter to date on a net basis.
The net profit was higher than what the market had expected, while revenue fell slightly short. The average forecast of 14 analysts polled by Dow Jones Newswires was for a net profit of INR24.32 billion on revenue of INR102.27 billion.
"Revenue is a bit weak as ARPU (average revenue per user) and (average) MoU (minutes of usage) have fallen more than we believed," said Sanjay Chawla, analyst Anand Rathi Securities.
"We would have been happier if Bharti had surprised on higher revenue rather than profit, because cost control and foreign exchange benefits can't last forever," Chawla added.
Analysts added that revenue growth was hurt by a recent reduction in the call termination charge. This also hurt the ARPU, which is already under pressure because of the company's expansion into low-income rural areas.
The call termination charge refers to a fee which the call-originating company pays to the called network. The government earlier this year reduced the termination charge for domestic calls to INR0.20 a minute from INR0.30 earlier.
Bharti Airtel - which is about 30%-owned by Singapore Telecommunications Ltd. (Z74.SG) - competes with Reliance Communications, the local unit of the U.K.'s Vodafone Group PLC (VOD.LN) and state-run Bharat Sanchar Nigam Ltd. for a share of the world's second-largest market with 415.25 million wireless users.
MTN Talks Continue
Talks are going on between Bharti Enterprises - the parent of Bharti Airtel - and South Africa's MTN Group Ltd. (MTN.JO) to form a global business combination, said Akhil Gupta, deputy group chief executive and managing director at Bharti Enterprises.
He didn't elaborate.
Bharti Airtel and MTN had in May revived talks over a complex $23 billion combination that would create one of the 10 largest companies in the mobile telecommunications industry. Their merger talks last year had fallen apart as they couldn't reach an agreement on a management structure.
Key Parameters Fall
Bharti has been expanding aggressively into rural markets, leading to a decline in ARPU and MoU, as it tries to stay ahead of rivals in a telecom market that adds about 10 million users a month.
But the South Asian nation still offers huge potential as a majority of its billion-plus people don't own a telephone, especially in rural areas.
"The focus of the recent union budget on rural growth and demand stimulation will support rapid growth of the telecom sector and Bharti Airtel," Sunil Bharti Mittal, chairman and managing director, said in a statement.
About 60% of the company's new users currently come from the rural areas, Manoj Kohli, chief executive & joint managing director at Bharti Airtel, told reporters.
Bharti's average revenue per user - a key gauge of profitability - for wireless services slipped 8.9% to INR278 from INR305 in the previous quarter. Its ARPU a year earlier was INR350.
The average minutes of usage for its wireless services also decreased, to 478 from 485 in the fourth quarter and 534 a year earlier.
Bharti gets more than 82% of its revenue from wireless services, with the rest coming from services such as fixed telephony and Internet offerings as well as voice and data services to corporate customers.
The company's total number of customers rose to 105.20 million at the end of June, maintaining its market share in the wireless services at 24%.
Quarterly earnings before interest, tax, depreciation and amortization, or Ebitda, margin expanded to 41.8% from 40.7% in the third quarter and 41.5% a year earlier, helped by operational efficiencies, said Kohli.
Net profit was boosted by a foreign exchange gain of INR2.50 billion against a loss of INR1.68 billion a year earlier, and by a deferred tax income of INR2.38 billion, compared with an expense of INR229 million a year earlier.
