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In a quarter where Bharti Airtel was expected to report losses, the company beat market expectations and managed to record profits for the March period.
The tariff war unleashed by Reliance Jio, down-trading to cheaper data packages by customers and the regulator’s reduction of interconnect charges did take a toll on revenues and margins of Airtel though.
In the March quarter, the company’s revenues fell 10 per cent over the same period in the previous fiscal, while net profit declined by 78 per cent. Its operating free cash flow (EBITDA-Capex) and interest coverage appear strained.
Airtel’s DTH and business services divisions (together accounting for a fourth of overall revenues) though had a reasonably smooth run as revenues from these divisions increased 9-11 per cent y-o-y.
For Airtel, the average revenue per user decreased by over 26 per cent y-o-y and nearly 6 per cent sequentially to ₹ 116, as lower tariffs and the trend of customers seeking to move out from costlier data packages to more attractive lower-cost options played out.
Operating free cash flow was down a whopping 82 per cent in the March quarter to ₹751.7 crore, as EBITDA fell and capex increased. Airtel’s interest coverage too has been coming down steadily and was at little over four times for the period, which by itself is reasonable, though the declining trend may be a cause for concern.
But it may not be all gloom and doom for the company.
For one, the telecom industry has consolidated to a 3-4 player market. The amount of data used per customer has increased nearly four-fold over the last one year to around 6.6GB for the company. Airtel’s subscriber base is healthy and has grown at over 11 per cent in y-o-y, even during the heavy competition phase.
So, when the hyper competition on tariff gradually subsides, pricing power should return over the next year or so.
The healthy performances of its DTH and B2B divisions may add to its top-line and margins.
For the near term, markets will cheer the fact that the relatively lower expectations were exceeded by the company.
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