Africa to weigh on Airtel's earnings near term

NEW DELHI, INDIA: The loss-making African operation of Bharti Airtel Ltd is expected to suppress near-term earnings of India's biggest mobile operator, which posted a bigger-than-expected 31.5 per cent net profit drop in the March quarter.

Bharti's prospects in its main market in India, the world's second-biggest and fastest-growing by mobile customers, have improved after call prices steadied last year following a vicious price war that led to sharp drops.

Companies including Bharti have recently started rolling out third-generation (3G) networks and are eyeing a pickup in premium data services to boost margins after they spent a total $15 billion at auctions last year to buy costly radio spectrum.

Zain acquisition makes Airtel world's 5th-biggest mobile carrier by subscribers

But Africa continues to weigh on Bharti's earnings. It acquired the loss-making mobile operations of Kuwait's Zain in 15 countries last June in a $9 billion deal and became the world's fifth-biggest mobile carrier by subscribers.

"In the short-term, Bharti's earnings will continue to be weighed down by losses in African operations as well as interest payments on loans it had taken," said K.K. Mital, head of portfolio management at Globe Capital.

"An improvement in the company's African operations will be key for its earnings prospects."

The company said Africa-related overall loss was at Rs. 416 crore in the March quarter.

Bharti expects to grow margins in Africa

Bharti expects to grow margins in Africa by bringing costs down but is still facing high cost structure in the region, said Manoj Kohli, Bharti Airtel's CEO for international operations.

"In the last 10 months, we have grown our revenue market share steadily in each (African) market," Kohli said.

Bharti had cut prices in several African markets to boost usage and is looking for long-term growth rather than turning a quick profit on the continent, a strategy that has hurt rivals such as Kenya's market leader Safaricom .

It was the fourth consecutive quarter of falling profits for Bharti, since it started reporting results based on international accounting standards.

Shares in Bharti, valued at about $32 billion, fell as much as 4.7 per cent after the earnings to Rs. 352.20. They recouped most of the losses and were trading down 0.84 per cent (Rs. 366.50) at 12.40 PM IST in a slightly positive Mumbai market .

Profit disappoints

Bharti, 32.3-per cent owned by Southeast Asia's biggest phone firm SingTel, said consolidated net profit fell to Rs. 1,400 crore ($314 million) for its fiscal fourth quarter ended March from Rs. 2,044 crore a year earlier.

Net sales in the quarter rose to Rs. 16,265 crore from Rs. 10,749 crore. The profit was weighed down by interest expense of Rs. 683 crore in the quarter.

Bharti posted a 12 per cent drop in average revenue per user per month, a key gauge for profitability, in the March quarter to 194 rupees ($4.3), while average usage per user per month for the quarter fell 4 per cent from a year ago to 449 minutes.

Average revenue per user in Africa dropped 3 per cent from the previous quarter to $7.20.

Bharti has earmarked as much as $3.1 billion in capital expenditure for its India, Africa, South Asia and tower business for this fiscal year, said Manik Jhangiani, group CFO at the mobile operator's parent Bharti Enterprises.

Bharti accounts for a fifth of India's mobile market of more than 800 million customers. It operates second-generation mobile services in all 22 telecommunications zones in the country and has rights to offer 3G services in 13 of them.

India's mobile market has been hit by a multi-billion dollar telecoms licensing scandal that has rocked the government and businesses. Bharti has not been implicated in the scandal.