Bharti posts first quarterly drop in profit in three years

28 Apr 2010

India’s largest mobile network operator by subscribers, Bharti Airtel, has announced a worse-than-expected drop in quarterly net profit as the effects of hyper-competition in the Indian wireless sector took hold. For the three months ended 31 March 2010 Bharti posted a net profit of INR20.55 billion, an 8% year-on-year decline compared to the INR22.39 billion it reported a year earlier, and representing the first fall in profit since it began reporting under US GAAP standards in 2006/07. Earnings before interest, tax, depreciation and amortisation (EBITDA) also fell compared to Bharti’s final fiscal quarter of 2008/09, down 4.5% y-o-y at INR38.22 billion, although revenue did rise, climbing 2.4% against the corresponding period last year to INR100.56 billion. Despite the results, Bharti chairman Sunil Mittal maintained that the telco was on solid ground, noting: ‘Bharti Airtel continues to be strongly positioned in India despite a hyper competitive market. We are excited about the prospects of an eventful year ahead.’

While Bharti once again reported a significant increase in subscriber numbers – at the end of March 2010 it had 127.62 million customers, up from 93.92 million a year earlier – average revenue per user (ARPU) has slumped in the wake of a tariff war in India that has seen the telco go head-to-head with the likes of Reliance Communications (RCOM). In the three-month period Bharti reported that ARPU had fallen 28% compared to 1Q 2009, down at INR220 from INR305. Average minutes of use had also fallen over the year, to 468 per month, a 4% decline.

According to TeleGeography’s GlobalComms Database, Bharti also has operations in Sri Lanka and Bangladesh, and at the end of last month it announced that it had entered into a legally binding agreement for the acquisition of the African assets of Kuwait-based telecoms group Zain. Under the terms of the agreement Bharti will make a cash payment of USD9 billion, of which USD8.3 billion will be paid on closing of the deal; the remaining USD700 million will be due one year after completion. Further, Bharti will assume USD1.7 billion of consolidated debt obligations as part of the deal, making it the second largest ever overseas acquisition by an Indian company, only topped by the USD12.9 billion Tata Steel paid for UK-based Corus Group in 2007. The deal marked Bharti’s third attempt to enter the African markets, after two failed attempts to purchase South Africa’s MTN Group, and will see it acquire units spread across 15 countries: Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo, Gabon, Ghana, Niger, Kenya, Madagascar, Malawi, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia.

India, Bharti Airtel