According to Bharti Airtel, the market remains very competitive, with both smaller companies as well some of the larger incumbents being aggressive in different markets. Photo: Pradeep Gaur/Mint
Mumbai/New Delhi: Bharti Airtel Ltd’s September quarter earnings did little to lift the gloom around telecom stocks.
Reported numbers look good: Net profit rose 10.1% to Rs.1,523 crore from Rs.1,383 crore a year earlier, beating analyst estimates.
But like Idea Cellular Ltd, Bharti reported a drop in average realizations in its voice as well data business, albeit at a lower rate. As pointed out in a Mark to Market column last week, the pressure on pricing, even before the commercial launch of services by Reliance Jio Infocomm Ltd, has made investors jittery (mintne.ws/1W5xZ9O).
Bharti Airtel and Idea Cellular’s shares have fallen by 5.2% and 6.8%, respectively, since the latter announced its results last week.
Bharti Airtel’s management said during an analysts’ call that the market remains very competitive, with both smaller companies as well some of the larger incumbents being aggressive in different markets. Idea’s note to investors had cited “pressure on mobile data realised rate as the competition intensifies” as one of the reasons industry growth has slowed to mid-single digits in the first half of this year, from double-digit levels a year ago.
To be sure, even while the data segment continues to drive overall growth, the rate of growth even in this segment has slowed this fiscal. Growth rates for both the companies put together has slowed from 100% two years ago, to 80% last year and 60% now.
As the chart shows, the year-on-year growth in Bharti Airtel’s data revenue was marginally slower than that of Idea Cellular, despite its 4G launch earlier in the year. Analysts at Kotak Institutional Equities said in a note to clients: “This was one area where we were a tad disappointed; Bharti Airtel’s first-mover advantage on 4G LTE roll-outs has not started translating into superior data growth rates, at least as far as early readings are concerned.”
However, Gopal Vittal, chief executive (India and South Asia) of Bharti Airtel, allayed such fears. “This game is still early. I would have been delighted if it was more, but disappointed is too strong a word to use here. Despite increasing data penetration, the rates are not falling. As the growth increases, the percentage growth falls but the absolute numbers are still very high,” Vittal said in a conference call with investors on Monday.
Bharti Airtel hasn’t shared numbers about the number of 4G connections, but anecdotal evidence, coupled with last quarter’s data revenue, suggest that pickup of the new services has been slow. Interestingly, as one analyst puts it, Bharti Airtel’s seemingly unimpressive 4G launch may well be a positive sign for incumbents. How? If data users aren’t exactly rushing to upgrade their 3G connections, then the much feared threat from Reliance Jio may not be such a big threat after all, goes the argument. Of course, these are still early days, and data is a fast evolving space. But early indications are that while telecom companies have increased spending to make the most of the data opportunity, there remains a question mark on whether they will make commensurate returns.
After the September quarter earnings, estimates on capital expenditure and realizations will have to be reconsidered. Bharti Airtel said it has raised its capital expenditure forecast by $200-400 million for its India and South Asia wireless business.
Coming back to Bharti Airtel’s quarterly earnings, in the core India mobile business, results were more or less in line with expectations. Revenue and operating profit fell by 1% and 1.5% sequentially to Rs.13,655 crore and Rs.5,268 crore, respectively. This isn’t entirely surprising, considering that the monsoon season tends to be weak for telecom companies.
Consolidated results were ahead of analysts’s expectations, mainly because of a surprise improvement in the Africa business and a jump in profit in the India enterprise business. But it’s premature to get excited about the improvement in Africa revenue and profit, and the India enterprise business tends to be lumpy.
For all the pressures telecom firms are facing, Bharti Airtel appears to be relatively better placed with its spectrum assets and financial strength. It has also done well to partially exit some of its businesses in Africa. Besides, valuations have been under pressure in the past year, thanks to the overhang of the Reliance Jio launch.
As such, a number of analysts believe that many of the negatives investors are fearing are already in the stock price. Unless news flow improves, investors may well remain jittery about telecom investments in India.
On Monday, shares of Bharti fell 1.91% to Rs.351.90 on the BSE, while the exchange’s benchmark Sensex declined 0.4%.