Bharti Airtel has surprised the market with its profit numbers. The company posted a net profit of Rs 1,011 crore as compared to market expectation of Rs 1,360 crore. This is the fourth straight quarter where the company posted lower net profit over its previous quarter. As seen in the chart below, this has been despite the fact that the company’s sales have been rising during the same period.
Market has reacted by pulling the stock down by over 6 percent at Rs 356.
Market has reacted by pulling the stock down by over 6 percent at Rs 356. Reuters
Among the prime reason for the drop in net profit is the sharp increase in selling and administration cost which have increased from Rs 3218.1 crore in December 2010 to Rs 3448.5 crore in December 2011. Comparative figure for September quarter was Rs 3000.4 crore. This indicates that the company had to push harder to get the topline growth benefit which increased from Rs 15,781.8 crore in December 2010 to Rs 18,507.8 crore in December 2011. Bharti had reported a sales of Rs 17,276.4 crore.
Though the company’s revenues from mobile service in India and South Asia has increased from Rs 9161.9 crore in December 2010 to Rs 10176.4 crore ,its earning before interest and tax (EBIT) has not kept pace and was in fact lower at Rs 2017.6 compared to Rs 2151.9 crore.
Source :Ace Equity
Revenue from Africa has increased sharply from Rs 4053.1 crore to Rs 5357.7 crore. Importantly Africa has managed to show a profit of Rs 299.9 crore as compared to a loss of Rs 31.7 crore in the previous year. However, compared on a sequential basis the company’s sales from Africa in September 2011 was Rs 4,703.2 crore while it had posted a higher EBIT of Rs 376.6 crore.
Even the Enterprise service has been affected on the profitability front on a quarter-on-quarter basis while its DTH (Direct to home) service continues to face losses.
The company has taken the effect of amortisation of its 3G licence fee to the tune of Rs 164 crore and an interest of Rs 116 crore on its books.
Though the numbers do not paint a rosy picture, there are a few events that can play to the company’s benefit.
First is that the company is through with its investment phase in Africa. In its December quarter numbers, the company has turned cash positive. Further, the recent cancellation of 2G licences by the Supreme Court will ease competition in the market and prompt the company to increase prices. The company’s average revenue per user has already shown a marginal improvement to Rs 187.
However, till rates increase the trend of sliding profits can continue, which given the response of the affected telecom players is unlikely to be anytime soon.
