|Pricing pressures and regulatory changes in the India wireless business continue to impact the operational performance of Bharti Airtel, which reported a 39 per cent year-on-year (y-o-y) drop in its December quarter net profit at Rs 3.05 billion. Consolidated revenues, which include the company’s Africa business, fell 13 per cent over the year-ago quarter to Rs 203.1 billion. While revenues were marginally lower than estimates, there was an over 10 per cent gap between the Street’s bottom line estimates and the reported numbers.
India wireless revenues, which account for over 53 per cent of the consolidated revenues, fell 22 per cent over the year-ago quarter to Rs 107.5 billion, making it the fifth quarter of declining revenue, starting in December quarter of 2016. From Rs 147-billion-plus of quarterly revenues, the India wireless service revenues are down about 27 per cent over the last five quarters. The reason for the sharp fall in revenues is the 57 per cent cut in interconnect use charge (IUC) from 14 paise per minute to 6 paise per minute, effective October 1, 2017. The company`s MD and CEO, India & South Asia, Gopal Vittal said, “Regulatory fiat in the form of a cut in domestic IUC rates has exacerbated the industry ARPU decline in Q3’18. The recent announcement of reduction in International termination rates will further accentuate this decline.”
This, coupled with down trading of existing customers to smaller value packs as well new subscribers opting for lower value offers, dented the revenues.
Thus, the average revenue per user (ARPU) has come down by a steep 28.5 per cent over the year-ago quarter and 15.2 per cent sequentially to Rs 123.
Analysts had estimated the ARPU figure to be Rs 127-129 during the quarter. Given the impact of the IUC cut was pegged at 10 per cent on the ARPU, the rate of down trading has been quite high both from higher ARPU customers as well as new customers. Pricing pressure has offset the gains from subscriber additions, which were up nine per cent over the year-ago quarter (three per cent sequentially), as well as higher volumes from voice and data services. Margins for the India business came in lower by 260 basis points (bps) to 37.7 per cent, while for the wireless business it was down 580 bps to 32.6 per cent.
The Africa business did better than estimated, with revenues falling about 4.3 per cent (against estimates of seven per cent fall), given the divestment of the Ghana operations. Adjusted for this, revenues were up 5.3 per cent on strong traction in data and transactions value for Airtel money. Africa accounts for about 22 per cent of revenues. Margins in the Africa business, which have been on the uptrend (up 10 percentage points over the last four quarters), hit the highest level ever of 35.5 per cent.
Overall margins were up 60 bps over the year-ago quarter and about 50 bps on a sequential basis as the company continued to focus on cutting costs. The company was able to cut operating expenditure by 10.3 per cent y-o-y for the consolidated operations to Rs 89.4 billion. Bharti Airtel is well poised to benefit from consolidation in the sector and its spectrum coverage as well as net debt to operating profit, which is less than four times compared to rivals Vodafone and Idea where it is on an annualised basis estimated to be 10-12 times.