|Bharti needs new ideas|
|Thursday, 09 February 2012 00:35|
Some stability returns, but Idea fares much better
Bharti Airtel’s stunning 22% fall in net profits for the December quarter—the eighth consecutive decline in profits by the company—despite a 17% hike in revenues on a year-on-year basis, and a 150 bps fall in ebitda margins on sequential basis (on a y-o-y basis, ebitda margins rose from 31.7% to 32.2%) can easily be explained in terms of the one-time hike in expenditure due to the Grand Prix and the Half-Marathon and an increased effective taxation of the company. In contrast to this, you can see some stability returning after several quarters. After falling consistently, from R199 in the December 2010 quarter to R183 in the September 2011 quarter, average revenue per user rose to R187 in the December 2011 quarter. Though minutes of usage are down to 419 in the December quarter, the rate of decline seems to have stabilised a lot. But compare Bharti to Idea which declared its results a few weeks ago, and while Bharti’s minutes of usage are static (they rose from 225.2 billion in September to 226.5 billion in December), Idea’s minutes rose 7% and ebitda margins rose 100 bps on a sequential basis—at 32.2%, though, Bharti’s margins are higher compared to Idea’s 26.7%. That Bharti’s minutes have remained static in the festival quarter is all the more disappointing.
Also keep in mind that while one-time expenses can be offered as an explanation, there will always be some such event every quarter. In Bharti Airtel’s own case, while depreciation and amortisation expenses rose R400 crore in the December quarter, financing costs fell by R486 crore. In the near future, Bharti Airtel will have to pay a one-time charge on its ‘extra’ spectrum, though it’s not yet clear as to whether this will be based on the Trai formula or whether this will be based on an auction—nor is it clear whether Trai will recommend a base price that is based on its earlier price-recommendations. The policy framework on 3G is also unclear as the government continues to argue intra-circle roaming of the type firms like Bharti-Airtel were doing is illegal. While the cut-throat competition of the past seems to be over, the fact is Trai has come out with a consultation on whether telcos should be free to raise tariffs. In other words, there is still considerable policy uncertainty left and the company whose shares fell 6.5% over Tuesday’s close will need to come up with some new ideas to convince the market it is still a good buy—the fact that other competitors are in danger of losing some of their licences, though, helps to make the company look more attractive.