Bharti Falls After Profit Misses Estimates as Costs Climb

Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, fell the most in more than two years in Mumbai trading after reporting profit that missed analyst estimates because of higher network costs and competition.

Bharti fell 6.6 percent to 274.35 rupees at the close in Mumbai, the most since May 2010. The stock was the biggest loser on the benchmark Sensitive Index, which was unchanged.

Bharti joined Vodafone Group Plc (VOD) in cutting prices for third-generation data services by at least 70 percent in India. A price war sparked by the entry of operators including Telenor ASA (TEL) and NTT DoCoMo Inc. (9437) drove voice call rates in the country to as low as a penny a minute. Bharti, which stepped up spending to expand its network that includes the African assets it acquired from Kuwait’s Mobile Telecommunications Co. (ZAIN), now plans to list its wireless towers unit to help reduce debt.

“They have significant debt -- that too in a deteriorating operating environment,” said Naveen Kulkarni, an analyst at MF Global Sify Securities India Pvt. in Mumbai. “It’s better off having a leaner balance sheet, so this listing is necessary.”

Net income fell 37 percent to 7.62 billion rupees ($138 million) in the three months ended June 30, from 12.2 billion rupees a year earlier, New Delhi-based Bharti said in a statement today. That lagged behind the 12.2 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg.

‘Hyper-Competition’

Revenue rose 14 percent to 193.5 billion rupees, missing the 194.8 billion-rupee median of 34 estimates. Earnings before interest, tax, depreciation and amortization, or Ebitda, rose to 58.5 billion rupees from 57.1 billion rupees a year earlier.

“Telecom revenues in India have been depressed due to hyper-competition and recent regulatory and tax developments,” billionaire Chairman Sunil Mittal said in the statement.

First-quarter Editda margin fell to 30.2 percent from 33.6 percent a year earlier, Bharti said in its quarterly report.

Operating expenditure, including network operation costs, selling, general and administrative costs, employee costs, and cost of goods sold, rose 21 percent to 91.8 billion rupees from 75.7 billion rupees a year earlier.

The company, which spent 156 billion rupees at auctions of airwaves in 2010 to introduce faster wireless services, started amortizing the spectrum costs and interest on borrowings to make that payment last year. The mobile-phone carrier controlled by Mittal is also expanding into Kenya and other African countries to offset slowing growth at home.

Towers Unit

Bharti’s debt exceeded cash and cash equivalents by 683 billion rupees as of June 30, up from 600 billion rupees a year earlier, the company said.

The board of Bharti Infratel Ltd., a subsidiary of Bharti that holds the mobile-phone operator’s telecommunications towers, appointed a committee to consider an initial public offering of the unit, according to an exchange filing today. The offer and its timing will be “subject to market conditions,” Bharti said.

“They’ve been looking at an IPO for quite some time now, so we’ll see what happens,” Kulkarni said. “The IPO market for telcos is very, very tough.”

Average revenue per user, a key metric of performance in the telecommunications industry, fell 3 percent in India to 185 rupees a month, from 190 rupees a year earlier. The average revenue per user for Bharti’s Africa operations declined 10 percent to $6.50 a month.

20 Countries

Bharti had 194 million subscribers in India and South Asia at the end of June, and a total of 250 million mobile subscribers across the 20 countries it operates, the company said.

Bharti started the roll-out of third-generation wireless services in India last year that will allow it to boost its revenues if data use and smartphones catch on among mobile phone users. The company paid the government 123 billion rupees for 3G wireless permits in 13 of India’s 22 telecommunication zones in May 2010, and another 33 billion rupees for licenses to offer broadband wireless service in four regions.

Japan’s DoCoMo and Norway’s Telenor set off a tariff war when they entered India with cut-rate plans to win a larger share of a market that is estimated by researcher Gartner Inc. to exceed 872 million active users in 2015. India had 696 million active subscribers in June, according to the nation’s regulator.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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