Bharti Airtel, the biggest Indian mobile operator, saw shares tumble 7 per cent on the announcement of the December 2011 quarter results. The company reported a net profit of Rs 1,011 crore on revenue of Rs 18,477 crore. The street expected a net profit of Rs 1,364 crore on revenue of Rs 18,410 crore.
Here are five things you need to know before you act on these numbers:
• The company’s important performance indicators have not disappointed the street. The average revenue per user or ARPU was Rs 187 per month in line with the street expectation. The minutes on network in India stood at 226 billion against 225 billion in the quarter to September 2011. This is an indicator of the time spent by subscribers on the Airtel network. The competitive scenario continues to remain strong. Bharti has lost market share and players like Vodafone and Idea have gained over the past two years. This means the pressure on revenue and profits would continue.
• The company’s operating profit margin for the flag ship mobile business was 33.8 per cent meeting expectation of the market. The mobile segment accounts for over 75 per cent of total revenue and operating profit of the company. The company’s consolidated operating profit margin was lower than expected due to higher selling and administrative expenses. This indicates that the core business is fine.
• The net profit was lower due to a high effective tax rate. The company reported a higher profit before tax (PBT) than September 2011 quarter but reported lower profit after tax (PAT) due to higher taxes. Amortization expenses were also higher in the December 2012 quarter as the company seems to have paid more for the debt. Amortisation is the repayment schedule of the debt.
• Bharti’s net debt was Rs 67,763 crore against Rs 64,439 crore in the September 2011 quarter. The net debt is the amount that the company may have to pay if called for after deducting cash it holds on the balance sheet. The number is higher in the telecom industry as companies have borrowed heavily for acquiring 3G licences in India. Bharti Airtel also borrowed to fund the $ 10.7bn acquisition of Zain in Africa.
• Bharti’s African business generated an operating free cash flow for the first time since Bharti Airtel took over Zain in 2009. It means that the company is able to generate cash after deducting its capital expenditures. The operating free cash flow is the money left from the operating profit after deducting the cost associated with the capital invested. Airtel has so far invested $ 13bn in the African operation. Bharti Airtel reported a $ 17m (Rs 85 crore) free cash flow. This means the company’s operating profit is higher than the capital needed to keep the operation going. Bharti has told analysts in the past that it plans to utilize the free cash flow generated in Africa to pay an over $ 10bn foreign currency debt. Overall, the company generates a free cash flow of Rs 3,835 crore (or $ 720m) from various businesses and over Rs 3,200 crore from the Indian mobile business alone each quarter.