Why Bharti Airtel is in trouble

Bottom line was below Street expectations as African operations hurt, while seasonality affected domestic performance.

Bharti Airtel reported a 47 per cent year-on-year rise in consolidated revenues at Rs 15,215 crore (Rs 152.15 billion) in the September quarter.

However, salary hikes in June and higher costs, including the tax outgo, raised operating expenses by 29 per cent.

This pulled the bottom line 27 per cent y-o-y to Rs 1,661 crore (Rs 16.61 billion). Earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 19 per cent to Rs 5,121 crore (Rs 51.21 billion).

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The seasonality impact on minutes of usage per subscriber (down 5.5 per cent sequentially) hurt India and South Asia mobile revenues, which were flat, belying expectations of a bounce-back after positive momentum over the last couple of quarters.

Ebitda margins of Africa operations, unexpectedly, contracted 360 basis points to 23.9 per cent.

The management has highlighted sufficient elasticity so far, with MoUs up nine per cent against a decline of nine per cent in revenue per minute.

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This elasticity was key to the success of operations in India, as increased volumes drove revenues despite lower realisations.

Replicating this model can turn around the Africa operations, and consequently, drive the stock in the next few quarters, say analysts.

However, with 3G and mobile number portability coming up in the next quarter, domestic operations are likely to come under pressure, as investment picks up and revenues lag.

With margins likely to be strained, analysts expect the stock to remain under pressure in the near term, as earnings estimates see downward revisions.

The stock, at Rs 317.45, trades at about 17x 2020-11 earnings per share estimates.