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3G and international operations to drive Bharti Airtel net

Bharti has announced capital expenditure of around $800 million in Africa and is expected to announce a new branding for its operations in the continent shortly. This capex and increasing domestic competition have impacted its earnings

Stiff competition at home and the increased tax rate in its newly-acquired entity in Africa saw leading private telecom operator Bharti Airtel posting a 26.53% dip in its net profit for the second quarter ending 30th September, at Rs1,661.2 crore.

Bharti's results included its new African operations that it acquired in June from Kuwaiti telecom group Zain for $9 billion to become the world's fifth-biggest mobile operator.

Its net profit fell to Rs1,661.2 crore under the international accounting standards for the second quarter ended 30th September, from Rs2,263 crore in the same period a year earlier.

The firm's profits were also hit by a higher tax rate on an average from its African assets. The effective tax rate in the second quarter increased to 25.5% from 10.6% in the corresponding period last year and 18.1% in the previous June quarter, mainly as a result of taxes in its Africa-based operations.

Despite the dip in profit, the company's total revenue rose by 46.6% to Rs1,52,150 crore from Rs1,03,78 crore in the same period last year, boosted by revenue from its acquisition in Africa. Bharti's last year figures did not include numbers from its Africa operations.

Brokerage firm Religare Capital notes, "Bharti reported Africa revenue/EBITDA of Rs39 billion/Rs9.3 billion with EBITDA margins of 23.9%, below our expectations. On metrics, the performance was good as Bharti added 3.7 million subscribers during the quarter, taking the subscriber base to 40 million, compared to 36 million in the June quarter. ARPUs were flat q-o-q at $7.4 and MOUs grew 9% q-o-q to 112 minutes suggesting first signs of elasticity."

It added that tariff pressures will moderate leading to a pick-up in growth in the Indian market. While investments in Africa would continue over the next two quarters, benefits of outsourcing and growth will be visible over the next one year. Religare suggests that African operations will drive the company's growth in the medium term.

BRICS Securities claims that Bharti's African business was impacted by higher access and interconnect charges, network operations cost, and sales & marketing charges. However, the brokerage maintains a BUY on Bharti Airtel with a target price of Rs380 per share.

Bharti has announced capital expenditure of around $800 million in Africa and is expected to announce a new branding for the Africa operations shortly. The margins in Africa are still low, Manoj Kohli, CEO of Bharti's international operations said, adding that he hopes to improve them by next year.

The telecom major expects to launch third generation (3G) services in India by the end of this calendar year. Bharti paid around Rs12,295 crore for 3G spectrum in 13 of the 22 circles in the country.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).

 

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