Bharti Airtel is confident of growing its high-speed mobile data business and turning around its struggling African operations after the Indian mobile market leader reported a bigger-than-expected fall in fiscal second-quarter profit that was its seventh consecutive quarterly profit drop.
Bharti on Friday said net profit for the three months to September fell 38 percent, hit by higher interest costs, foreign exchange losses and its money-losing African operations.
The poster boy of India's telecoms sector last year ventured into Africa by acquiring most of the mobile operations of Kuwait's Zain in a $9 billion deal, becoming the world's fifth-biggest mobile carrier by subscribers. But high costs have weighed and Bharti has yet to turn a profit there.
In India, the outlook for Bharti and its rivals have improved after they raised voice call prices by about a fifth, the first such increase in at least two years, after a vicious price war in the 15-player market squeezed profits.
The government has said it will ease rules for telecom mergers and acquisitions to facilitate consolidation in the crowded sector, a move seen as positive for companies such as Bharti, who were hit by stiff competition from new entrants after India issued more telecom licenses in 2008.
We have turned slightly overweight on the sector, said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance, which holds telecoms stocks in its portfolio of $1.8 billion. The trigger has been that telecom companies are getting back the pricing power and there is some element of consolidation.
Bharti shares, valued at more than $30 billion, were up more than 0.7 percent by 0824 GMT (4:24 a.m. EDT) after falling initially after the results were announced. The stock is up 10 percent this year, outperforming a nearly 14 percent fall in the broader market.
Bharti was founded by Sunil Mittal, who started his career selling bicycle parts and saw an opportunity in telecoms when India was opening the sector to private participation in the mid 1990s. Mittal is India's sixth-richest man currently, according to Forbes magazine.
Carriers in India, the world's second-biggest mobile phone market with about 870 million users, are also betting on premium data services to boost margins after they launched third-generation (3G) networks earlier this year, although the initial uptake has been slower than expected.
Bharti has 7 million 3G customers in India, with a quarter of them using the services regularly, Sanjay Kapoor, the company's chief executive of India and South Asia, told reporters, adding he remained optimistic for the company's growth potential.
Broadband story in India can only go northwards, he said, adding Bharti will launch wireless broadband services using LTE technology during the current fiscal year to March 2012.
Kapoor said Bharti will not be averse to making acquisitions in India, declining to comment on specifics.
Bharti, nearly a third owned by Southeast Asia's biggest phone firm, SingTel, said consolidated net profit fell to 10.27 billion rupees ($210 million) for the quarter ended September from 16.61 billion rupees a year earlier, based on international accounting standards.
Consolidated revenue rose to 172.76 billion rupees from 152.31 billion in the year-earlier quarter.
A Reuters poll of brokerages had expected net profit of 12.33 billion rupees on revenue of 172.58 billion rupees for the New Delhi-based firm, which had 227 million mobile users at the end of September in 19 countries in Asia and Africa.
Negative surprises were limited, Manish Sonthalia, a fund manager at Motilal Oswal Asset Management, said of the results. On the domestic side, the drop in (profit) numbers and the fall in traffic quarter-on-quarter are roughly in line with a general industry trend, he said.
Bharti's African business reported a net loss of 4.27 billion rupees for the quarter although revenue grew about 23 percent for the year. African operating margins grew to 26.4 percent for the quarter, still far lower than 36.1 percent in the Indian and South Asia business.
Bharti has an internal goal to achieve $5 billion in revenue and $2 billion in operating profit from Africa by the year ending March 2013, and Manoj Kohli, the company's chief executive for international business, said they were confident of the goals.
Monthly average revenue per user (ARPU), a key metric for telecom carriers, from Bharti's Indian operations fell an annual 9 percent to 183 rupees for the quarter, while Africa ARPU fell 1 percent to $7.3.
Interest expenses for the quarter more than tripled for Bharti, which has $13.2 billion in net debt as of September. The company funded its African acquisition through debt and took on more loans to finance 3G spectrum and network in India.
Currency fluctuations increased the cost of servicing foreign currency loans, leading to foreign exchange losses of 2.39 billion rupees for the quarter, versus a gain of 2.49 billion rupees in the year-earlier quarter.
Bharti slightly raised its capital expenditure target for the fiscal year to up to $3.5 billion as it will spend more in Africa than earlier planned.
Bharti plans to raise $750 million to $1 billion through a dollar bond issue, but said it will wait until market conditions improve.
($1=49 Indian rupees)
(Additional reporting by Henry Foy; Editing by Tony Munroe and Matt Driskill)