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Published on 6/02/2020 9:08:02 AM | Source: Live Mint

Strong subscriber gains, tariff hikes keep shareholders tuned in to Airtel

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Mumbai : Shares of Bharti Airtel Ltd have gained 13% since 8 January when the company released its key operating metrics for the December quarter. The numbers showed a strong growth in customer additions, notably 4G users. Voice traffic grew at a decent pace and data volumes maintained the double digit growth tempo.

The numbers had led to the belief that the company will also report an impressive financial performance. But the earnings translation has not been as strong.

Quarterly financial results, released after market hours on Tuesday, indicate a not so impressive performance. Operating profit at its India mobile services business grew just 0.5% from the September quarter. This is despite a 5% expansion in revenue and average revenue per user (ARPU).

According to Kotak Institutional Equities, Airtel changed its reporting structure for India wireless and other businesses (homes and enterprise segments) this quarter. Even so, adjusted for the changes, the performance lagged estimates. “India wireless EBITDA – adjusted EBITDA of ₹42.6 billion ( ₹4,260 crore) missed our estimate of ₹45.9 billion ( ₹4,590 crore) by a substantial 7.2%," Kotak Institutional Equities said in a note. Ebitda is earnings before interest, tax and amortization.

Revenue growth while decent, again lagged estimates. This is partly explained by higher expenditure. The reported profit margin of the India wireless business softened 40 basis points to 35.9% last quarter. “In addition to the revenue miss, costs also came in higher than our estimate," analysts at Kotak adds.

Due to higher taxes the consolidated loss also exceeded estimates. Even so investors are not perturbed. The stock was up a marginal 0.4% on Wednesday in early trade. What explains the gains?

The December quarter reflects only one month of tariff hikes. So the impact the numbers do not fully capture the price hikes.

Further given the varied recharge cycles of the customers it is tough for the analysts to gauge the earnings impact accurately as well. “We wouldn’t be too fussed with this minor miss, for two reasons – (a) pace of price hikes flowing through was a tough thing to estimate accurately, and (b) there was higher-than-expected off-net traffic swing in 3Q; this would have meant lower termination revenues for Bharti Airtel (and Vodafone Idea Ltd)," said analysts at Kotak.

That said, the reported numbers show a superior performance vis-à-vis market leader Reliance Jio Infocomm Ltd.

Airtel clocked better growth in revenue per user, data volumes and subscriber additions. “Despite early price increases by Jio in October (2019), its ARPU was up by 0.7% QoQ at ₹128.4; data usage was up marginally at 0.3% QoQ. 4G sub additions were at 15 million (vis-à-vis 20 million additions at Airtel)," Himanshu Shah, analyst, Dolat Capital Market Pvt. Ltd said in a note.

This is helping the stock. Following the recent equity infusion, the company is well placed to cope with adverse verdict on the license and spectrum dues. However, large pay-outs can impose financial burden on the company, analysts warned. This is one key variable investors need to keep a tab on.