Bharti Net Falls on Increased Competition, Network Costs

Bharti Airtel Ltd., India’s largest mobile-phone operator, reported a drop in profit as rising network costs and call-rate reductions in the world’s second-largest wireless market squeezed margins.

Second-quarter net income fell 30 percent to 7.21 billion rupees ($133 million) in the three months ended Sept. 30, from 10.30 billion rupees a year earlier, New Delhi-based Bharti said today. That compared with the 7.27 billion-rupee median of 18 analysts’ estimates compiled by Bloomberg. Revenue rose 17 percent to 202.7 billion rupees, beating the 195.5 billion-rupee median of analysts’ estimates.

Bharti joined rival Vodafone Group Plc in cutting call and data rates this year after a price war sparked by the entry of operators including Telenor ASA and NTT DoCoMo Inc. into India drove voice-call charges as low as a penny a minute. The wireless carrier controlled by billionaire Sunil Mittal also saw an increase in costs as it expanded its networks in India and Africa, and spent more on marketing and advertising.

“In terms of operating performance, it could be the beginning of a turnaround for Bharti,” said Naveen Kulkarni, an analyst at MF Global Global Sify Securities India Pvt. in Mumbai, who rates the stock sell. “The revenue beat is primarily on account of the slowdown in minutes being less than expected in India, and Africa has done reasonably well.”

Minutes on Network

Shares of Bharti fell 1 percent to 271.10 rupees at the close of trading in Mumbai. The stock has slumped 21 percent this year making it the biggest loser on the benchmark Sensitive Index, which has climbed 22 percent.

Earnings before interest, tax, depreciation and amortization, or EBITDA, rose 9 percent to 63.5 billion rupees from 58.2 billion rupees a year earlier. EBITDA margin fell to 31.3 percent last quarter from 33.7 percent in the year-earlier period.

Minutes that customers spent talking on Bharti’s network in India rose to 234 billion in the second quarter, from 217 billion a year earlier, according to the company’s quarterly report. Minutes in Africa grew to 23.6 billion from 18 billion.

Voice average revenue per user in India fell to 148 rupees from 153 rupees last year, and declined in Africa to $5.50 from $6.50 last year.

Bharti, 32.3 percent owned by Singapore Telecommunications Ltd., is focused on leading the market development through network and distribution expansion, and affordable pricing amid “intensified competitive pressures,” it said in a statement.

Margin Correction

The company, which spent 156 billion rupees at auctions of airwaves in 2010 to introduce faster wireless services, started amortizing last year the spectrum costs and interest on borrowings to make that payment. Bharti is also expanding in Kenya and other countries with its purchase of the African assets of Kuwait’s Mobile Telecommunications Co. to offset slowing growth at home.

“There’s been a substantial margin correction because of a rise in network spending and sales and general costs” including that of marketing, Ankur Rudra, an analyst at Ambit Capital Pvt. in Mumbai, said before the earnings announcement. “It’s also partly because of tariff competition, primarily led by the larger companies.”

Bharti’s debt exceeded cash and cash equivalents by 668 billion rupees as of Sept. 30, up from 644 billion rupees a year earlier, the company said in its quarterly report.

Depreciation of license investments and amortization of interest on its loans increased to 38.6 billion rupees from 31.8 billion rupees a year earlier.

Operating expenditure, including network operation costs, selling, general and administrative costs, employee costs, and cost of goods sold, rose 21 percent to 93.3 billion rupees from 76.8 billion rupees a year earlier.