Mumbai: Bharti Airtel Ltd has reported a net profit of Rs305.8 crore for the December 2017 quarter, which represents a 39.3% fall compared to the year-ago period.
But this masks a massive drop in the profitability of the company’s India wireless business. Earnings before interest and tax (Ebit) of the division fell 93% year-on-year to Rs167 crore. Assuming even 10% of the company’s finance cost of Rs2,088 crore is attributable to the India wireless business, this means that the unit ran losses in the December quarter. In reality, around 60% of the company’s debt and finance costs can be attributed to the India wireless business.
Revenues of the unit fell 22.2% year-on-year and 12.2% sequentially to Rs10,751 crore. The decline can be attributed largely to the 57% cut in interconnection usage charges (IUC) by Telecom Regulatory Authority of India (Trai) effective 1 October. “Our math suggests that mobile termination contributed to as much as 14-15% to Bharti’s India wireless revenues and a similar proportion to the segment’s EBITDA in 2QFY18. A 57% cut in MTR, all other things remaining the same, should result in around 8% sequential drop in India wireless revenues for Bharti,” analysts at Kotak Institution Equities had written in a results preview note to clients.
The fact that revenues fell at a faster pace suggests further downtrading by the company’s subscribers. Incumbents such as Airtel extended discounted bundled offers to its larger subscriber base only in the last quarter; earlier, most such schemes were available to subscribers who owned 4G compatible handsets.
As such, the company’s India wireless operations have been hit by a double whammy. So much so that the division’s reported profit was below beaten down expectations of analysts; and worse still, with rising capital expenditure, depreciation charges were higher than estimates.
The saving grace continues to be the company’s Africa operations, where Ebit rose by over 7 times year-on-year. While revenues in the region have been more or less flat, profit margins have improved on the back of the restructuring the company has undertaken. It’s because of the manifold jump in Africa profits that the decline in overall profits was limited to 39% in the December quarter.