Despite India biz loss, Bharti Airtel in pole position

Despite posting its lowest ever quarterly profit in the January-March quarter, analysts believe that telecom major Bharti Airtel will maintain its leading market share position in the intensely competitive market given its huge network and spectrum footprint.

The numbers released on Tuesday did not project a rosy picture for the country's largest telecom player, as the constant pricing war since the launch of Reliance Jio in 2016 continues to wreak havoc on the telecom players. Improvement in Africa business margins and growth in data segment offered a silver lining to the otherwise dismal numbers.

However, analysts expect stability in the telecom sector to emerge in the current fiscal.

Goldman Sachs in an analyst report said the market is currently not fully pricing in robust growth in some of Bharti's other businesses. Besides, it's relatively strong balance sheet and spectrum/network footprint is likely to result in the telecom major maintaining its leading market share position in an intensely competitive but consolidating wireless market.

Bharti has not over-reacted to Reliance Jio's pricing actions in late January and has kept its pricing plans largely unchanged, suggesting that the former may not just blindly respond to RJio and plans to place a floor to prices, according to JP Morgan analysts.

"This is a signal to RJio as well indicating incumbents' desire for greater price discipline and if discipline stays, stability should emerge in the sector during FY19," the note by JP Morgan said.

In an analysts call, Bharti Airtel CEO India and South Asia Gopal Vittal said its been two years of mayhem – one year of free services and another year of nearly free services along with several regulatory hits. "There is revenue erosion but we have held our market share well, even margins. We enhanced our capex significantly and registered massive growth in customers additions. But, this heightened competitive activity will continue."

The company's overall capex for this fiscal will be around Rs 27,000-28,000 crore.

?Bharti expects to get approval for a merger with Telenor in the first quarter, while approval for a merger with wireless operations of Tata Group is expected in the third quarter.

Vittal said an important metric to track is the customer addition and data consumption, where we have made good progress. "In the short-term, there are some headwinds. But the worst is behind us in terms of revenue erosion."

It added about 16 million data users in the fourth quarter. "When people move from 2G to 4G, the ARPUs tends to double. 4G is the critical game for us to win".

The data consumption on the Airtel's network has jumped from about 1.5 petabytes per day six quarters ago to over 20 petabytes per day now.

"It will be a three-player market and with 1.3 billion users, we are well positioned to create value," Vittal said.

Analysts had predicted a first net loss for the company but it managed to post a profit of Rs 82.9 crore, a decline of 77.8% for the quarter ended March 31. This is the lowest quarterly profit in nearly 15 years.

The fourth quarter results were in-line with our expectations and net income of Rs 829 million was better than our estimate of a net loss of Rs 2.2 billion due to lower depreciation and tax expense, another analyst note by UBS said.

Africa business continued to shine as evident in the numbers with EBITDA margins inching up to 36%.

For Africa, revenue growth and superlative margin performance have been good but low FY18 capex in Africa is a bit surprising which might need to move up in FY19. The Africa business was PAT positive, which helped tide Bharti over the net losses in the India business, JP Morgan said.

Cost control initiatives as well as decoupling of low margin operations in Africa helped improve margins by 10% over the past 12 months, Morgan Stanley said.

The telecom sector has been witnessing severe pricing wars triggered by the entry of new player Reliance Jio, owned by Mukesh Ambani. Since then, the industry's profits and revenues have been on a downward trajectory. Telecom regulator Trai's decision to cut international termination charges (ITC) to 30 paise from 53 paise from this February also impacted the financials. Domestic ITC was also drastically reduced in last October as well.

The silver lining has been a surge in data usage on its mobile network. The mobile data usage per customer in India increased by 394.7% to 6585 MB during the fourth quarter compared to 1331 MB in the same quarter last year, while mobile data on network grew 584% to 1.54 trillion MBs y-o-y. In India, the mobile data customer base grew by 50% to 86.1 million, while mobile broadband customer grew by 79.3% at 76.58 million, though the key metric - average revenue per user (ARPU) fell 26.7% to Rs 116 during the fourth quarter.

...& ANALYSIS

• Analysts expect stability in the telecom sector to emerge in the current fiscal
   
• Goldman Sachs said the market is currently not fully pricing in robust growth in some of Bharti's other businesses