Bharti Airtel disappoints market; profit drops 13 percent

Bharti Airtel disappointed the market by posting lower than expected numbers. For the first quarter of the current fiscal the company posted a 13 percent drop in its profit to Rs 1,215 crore from Rs 1,400.7 crore in the previous quarter (Market expectation Rs 1,518 crore). The company posted a net profit of Rs 1,681.6 crore in the same period last fiscal. This is the sixth straight quarter of profit fall by the company.

Higher than expected interest and tax cost has resulted in the fall in net profit. Its business in Africa continues to post losses. African business posted a net loss of Rs 302 crore for the June quarter, though its revenue from Africa increased by 6 percent to Rs 4,378 crore. There are signs that the Africa business is turning around rapidly. Minority interest (mainly due to African operations) has come down from Rs 70.1 crore in the fourth quarter of the previous fiscal to Rs 9.80 crore in the first quarter of the current fiscal. Lower interest cost is a sign that the company has been able to manage its cash well and will be able to show profit at the net levels.

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[caption id=“attachment_53697” align=“alignleft” width=“380” caption=“Bharti Airtel posted a 4.4 percent revenue growth which was due to a 3.6 percent cellular growth. Reuters”]  [/caption]

Bharti Airtel posted a 4.4 percent revenue growth which was due to a 3.6 percent cellular growth, 4.7 percent from Africa and 11.6 percent from DTH (direct to home business). The company posted a net revenue of Rs 16,974.90 crore for the first quarter.

Even before the company announced a hike in cellular rates, the company has shown an improvement in its margins by 0.86 percent to 34.2 percent. The rise follows 5 consecutive quarters of fall in margins in the cellular segment. Monthly average revenue per user (ARPU), a key metric for telecom carriers fell by 2 percent over previous quarter to Rs 190 for the Indian operations. The drop was similar inAfricato $7.3. Average minute usage declined from 449 in the previous quarter to 445 in the current one.

Profit before interest and tax were higher in the first quarter as compared to the fourth quarter, but net profit was lower on account of higher interest and tax outgo. Effective tax rate of the company increased from 23 percent to over 29 percent on account of reduction in tax holidays benefits, resulting in lower profits. Interest cost increased from Rs 649.2 crore to Rs 847.1 crore.

Bharti Airtel stock reacted by falling almost 4 percent during the day immediately after announcement of the results but bounced back to close 1.43 percent lower at Rs 426.20.

Going forward what is important is the recent 20 per cent hike announced by the company in cellular rates which is expected to improve margins and profits of the company. Analysts remain bullish on the company despite lower profits for the quarter on account of this rate hike.