Bharti Airtel's Q2 net profit down by 5%

NEW DELHI:India's largest telecom operator in terms of subscribers, Bharti Airtel has reported a 4.9 per cent year-on-year (y-o-y) drop in its consolidated net profit at Rs 1,461 crore for the quarter ended September 30, 2016.

Interestingly, telecom operator had reported a net profit of Rs.1,536.1 crore for the fourth quarter ended September 30, 2015.

“As on September 30, 2016, the Company had 363.1 Mn customers, an increase of 6.8% (8.5% underlying) as compared to 340.0 Mn in the corresponding quarter last year. Total minutes of usage on the network during the quarter were 370.2 Bn, representing a growth of 10.2% (10.5% underlying) as compared to 336.0 Bn in the corresponding quarter last year. Mobile Data traffic continue to grow at healthy rate and grew at 60.9% (61.6% underlying) to 221.5 Bn MBs during the quarter as compared to 137.7 Bn MBs in the corresponding quarter last year,” the company said in a statement.

“During the quarter, consolidated revenues stood at Rs 246,515 Mn as compared to Rs 238,357 Mn in the corresponding quarter last year, an increase of 3.4% (5.6% underlying). Consolidated revenue growth muted by 3.3% on account of full quarter impact of Nigeria currency devaluation. Mobile data revenues up by 19.2% (21.0% underlying) to Rs 45,363 Mn as compared to Rs 38,056 Mn in the corresponding quarter last year. Mobile data revenues now represent 18.4% of the total revenues as compared to 16.0% in the corresponding quarter last year,” it said.

“India revenues at Rs 192,188 Mn representing a growth of 10.1% compared to corresponding quarter last year,” the company claimed.

Consolidated net revenues, after netting off inter-connect costs and cost of goods sold, increased by 4.0% (6.2% underlying) to Rs 217,050 Mn as compared to Rs 208,801 Mn in the corresponding quarter last year. Opex (excluding access costs, costs of goods sold and license fees) has declined by 4.5% Y-o- Y (decline of 2.5% underlying) to Rs 98,445 Mn for the quarter ending September 30, 2016. Underlying opex drop is primarily on account of currency devaluation in Nigeria & high opex control.

Consolidated EBITDA of Rs 94,662 Mn during the quarter, increased 14.5% (17.4% underlying) as compared to Rs 82,653 Mn in the corresponding quarter last year. EBITDA margin improved significantly during the quarter to 38.4% as compared to 34.7% in the corresponding quarter last year, contributed by both geographies. India EBITDA margin at 42.8% has expanded from 40.2% in the corresponding quarter last year.

“Depreciation and amortization expenses amounted to Rs 49,560 Mn as compared to Rs 42,390 Mn in the corresponding quarter last year, which reflects an increase of 16.9%, primarily led by incremental depreciation on capex and higher spectrum amortization expenses in India. EBIT for the quarter increased by 12.3% (14.3% underlying) to Rs 45,042 Mn as compared to Rs 40,112 Mn in the corresponding quarter last year. Cash profits from operations (before derivative and exchange fluctuations) during the quarter was higher by 8.6% at Rs 77,240 Mn as compared to Rs 71,111 Mn in the corresponding quarter last year,” the statement said.

Net finance costs at Rs 19,057 Mn were higher by Rs 304 Mn primarily on account of higher interest on borrowing of Rs 4,769 Mn (Q2‟17 – Rs 15,541, Q2‟16 – Rs 10,772 Mn) due to spectrum borrowing cost, this was off-set by lower forex losses in current quarter compared to corresponding quarter last year.

“The resultant profit before tax and exceptional items for the quarter ended September 30, 2016 was Rs 27,353 Mn as compared to Rs 23,127 Mn in the corresponding quarter last year, an increase of 18.3%,” the company mentioned in the statement.

The consolidated income tax expense (before the impact on exceptional items) for the period of six months ending September 30, 2016 was Rs 24,404 Mn, compared to Rs 27,832 Mn in the corresponding period of last year. The underlying effective tax rate in India for this period has increased by 3.0% on account of expiry/reduction of tax holidays benefits in select units.

Though due to certain one offs, reported effective tax rate in India for the period of six months came in at 29.8% (28.4% excluding dividend distribution tax) compared to 30.1% (28.7% excluding dividend distribution tax) for the full year ended March 31, 2016. The tax charge in Africa for the period of six months ending September 30, 2016 came at $ 69 Mn (full year 2015-16: $ 189 Mn) has been lower primarily due to change in profit mix of the countries.

After accounting for Rs 907 Mn towards net gain of exceptional items (details provided below in 5.3.2), the resultant consolidated net income for the quarter ended September 30, 2016 came in at Rs 14,607 Mn, compare to Rs 15,361 in the corresponding quarter last year.

The consolidated operating free cash flow during the quarter was higher by 29.3% at Rs 41,786 Mn as compared to Rs 32,310 Mn in the corresponding quarter last year.

Consolidated net debt for the Company has marginally came down to $ 12,232 Mn as compared to $ 12,365 Mn in the previous quarter, though the net debt excluding the DOT obligations has decreased by $ 343 Mn as compared to previous quarter and stood at $ 6,547 Mn as at 30 September 2016 ($ 6,891 Mn as at 30 June 2016).

High spectrum costs and consequent increase in associated amortization costs has resulted in decline of Return on Capital Employed (ROCE) to 7.4% from 9.1% in the corresponding quarter last year.

“Exceptional items during the quarter ended September 30, 2016 comprises of (i) charge of Rs 1,287 Mn towards operating costs on network re-farming and up-gradation program, (ii) benefit due to reversal of certain expired claims/liabilities aggregating to Rs 1,130 Mn, (iii) net benefit of Rs 90 Mn pertaining to the divestment of subsidiary/divestment of telecom tower asset, and (iv) net tax benefit of Rs 938 Mn and impact of minority interest of Rs 37 Mn on the above,” it said.

As on September 30, 2016, the Company had 259.9 Mn GSM customers as compared to 235.2 Mn in the corresponding quarter last year, an increase of 10.5%. The churn has marginally increased to 3.7% for the quarter ending September 30, 2016 compared to 3.5% in the corresponding quarter of last year on account of competitive pressures but remains the lowest in the industry. Total minutes on network increased by 11.1%, highest in last 20 quarters, to 313.4 Bn as compared to 282.1 Bn in the corresponding quarter last year. Voice realization per minute has dropped by 2.16 paise to 32.42 paise in the current quarter compared to 34.58 paise in the corresponding quarter last year.

“The Company continued to add healthy data customers with 62.7 Mn data customers (24.1% of total customers) as on September 30, 2016, representing a growth of 22.8% as compared to 51.0 Mn (21.7% of total customers) at the end of the corresponding quarter last year. The total MBs on the network has increased by 54.9% to 178.1 Bn MBs as compared to 115.0 Bn MBs in the corresponding quarter last year. Mobile Data usage per customer continued their healthy growth path. Mobile Data usage per customer witnessed an increase of 30.6% to 1000 MBs during the quarter as compared to 765 MBs in the corresponding quarter last year. Data ARPU increased by 4.2% to Rs 201 from Rs 193 in the corresponding quarter last year,” it added.

The Company continued to invest on upgradation and expansion of network towers. By the end of the quarter, the Company had 158,934 network towers as compared to 149,518 network towers in the corresponding quarter last year. Out of the total number of towers, 110,382 are mobile broadband towers i.e. those are either 3G or 4G equipped towers. The Company had 148,078 mobile broadband base stations now (3G & 4G Base Stations across all technologies i.e. 900/2100/1800/2300), as compared to 80,432 mobile broadband base stations at the end of the corresponding quarter last year and 137,567 at the end of the previous quarter.

Revenue from mobile services during the quarter was Rs 147,353 Mn as compared to Rs 136,556 Mn in the corresponding quarter last year, a growth of 7.9%. The top line growth was muted due to shrinking of Intra Operator Roaming revenue, normalizing for which revenue grew by 9.4%. Revenue from mobile data accounted for 24.7% of the total mobile revenue during the quarter as compared to 21.5% in the corresponding quarter last year. Mobile data revenue during the quarter grew by 23.6% to Rs 35,760 Mn over the corresponding quarter last year.

EBITDA during the quarter increased by 18.8% to Rs 62,492 Mn as compared to Rs 52,624 Mn in the corresponding quarter last year. EBITDA margin improved significantly to 42.4% during the quarter as compared to 38.5% in the corresponding quarter last year. Improvement in margin is mainly due to sustained top line growth and driving cost efficiencies. EBIT during the quarter was Rs 33,103 Mn as compared to Rs 30,676 Mn in the corresponding quarter last year, an increase of 7.9%. EBIT margin at 22.5% was flat as compared to corresponding quarter last year after absorbing the incremental amortization cost on new spectrum acquired which has an impact on EBIT margin of 2.6%.

During the quarter, the mobile business incurred capital expenditure of Rs 37,055 Mn primarily in enhancing Company‟s data capabilities. Operating free cash flows increased by 17.9% at Rs 25,437 Mn as compared to Rs 21,567 Mn in the corresponding quarter last year.

As on September 30, 2016, the Company had its Homes operations in 87 cities with 2.1 Mn customers, out of which approximately 1.9 Mn were broadband (DSL) customers, representing 91.1% of the total Homes customers. Net customer additions for Homes segment during the quarter were 64 K.

For the quarter ended September 30, 2016, revenues from Homes operations were Rs 7,063 Mn as compared to Rs 6,149 Mn in the corresponding quarter last year, a growth of 14.9%. EBITDA for the quarter was higher by 27.8% to Rs 3,347 Mn compared to Rs 2,618 Mn in the corresponding quarter last year. EBITDA margin for this segment improved to 47.4% during the quarter as against 42.6% in the corresponding quarter last year. EBIT for the quarter ended September 30, 2016 was Rs 1,634 Mn as compared to Rs 1,386 Mn in the corresponding quarter last year, growth of 17.9%.

During the quarter ended September 30, 2016, the Company incurred capital expenditure of Rs 2,162 Mn for the Homes business. The step up in capex is primarily on account of network upgradation and capacity enhancement. Cash flow for the quarter was Rs 1,186 Mn as compared to cash flow of Rs 1,672 Mn in the corresponding quarter last year.

As on September 30, 2016, the Company had its Digital TV operations in 639 districts. DTH had 12.4 Mn customers at the end of the quarter, which represents an increase of 17.3%, highest in last 17 quarters, as compare to the corresponding quarter last year. Net customer additions for Digital TV during the quarter were 256 K. ARPU increased to Rs 232 as compared to Rs 224 in the corresponding quarter last year.

Revenue from Digital TV services had increased by 20.9% to Rs 8,545 Mn as compared to Rs 7,068 Mn in the corresponding quarter last year. EBITDA for this segment continue to improve and is at Rs 3,030 Mn as compared to Rs 2,343 Mn in the corresponding quarter last year. The reported EBITDA margin improved to 35.5% in the current quarter, as compared to 33.1% in the corresponding quarter last year. The improvement in EBITDA has resulted in an EBIT of Rs 699 Mn in the current quarter, as compared to EBIT of Rs 170 Mn in the corresponding quarter last year.

During the current quarter, the Company incurred a capital expenditure of Rs 2,541 Mn. The resultant operating free cash flow during the quarter was at Rs 488 Mn as compared to cash burn of Rs 158 Mn in the corresponding quarter last year.

B2B Services – India: Airtel Business

Revenues in this segment comprises of: a) Enterprise & Corporates Fixed Line, Data and Voice businesses, and b) Global Business which includes wholesale voice and data. Revenue as per point a) above, together with Enterprise Mobile revenues (included in India Mobile) is at Rs 25,719 Mn in this quarter.

Airtel Business segment has reported revenues of Rs 29,816 Mn during the quarter as compared to Rs 25,004 Mn in the corresponding quarter last year, growth of 19.2%. EBITDA stood at Rs 8,440 Mn during the quarter as compared to Rs 7,880 Mn in the corresponding quarter last year, higher by 7.1%. EBIT for the current quarter has increased by 21.4% to Rs 6,114 Mn as compared to Rs 5,035 Mn during the corresponding quarter last year. EBIT margin increased to 20.5% during the quarter as compared to 20.1% in the corresponding quarter last year.

The Company incurred a capital expenditure of Rs 1,507 Mn in Airtel Business as compared to Rs 1,132 Mn in the corresponding quarter last year. Operating free cash flow during the quarter was Rs 6,934 Mn as compared to Rs 6,749 Mn in the corresponding quarter last year.

Tower Infrastructure Services

The financials of this segment reflect standalone operations of Bharti Infratel Limited (Infratel), a subsidiary of the Company, with the interest in Indus Tower Ltd (Indus) disclosed under share of profits from Joint Ventures/ Associates.

Revenues of Infratel for the quarter ended September 30, 2016 has increased by 9.0% to Rs 14,962 Mn as compared to Rs 13,724 Mn in the corresponding quarter last year. EBITDA during the quarter was higher by 16.0% at Rs 7,106 Mn compared to Rs 6,126 Mn in the corresponding quarter of last year. EBIT for the quarter was higher by 29.0% to Rs 4,200 Mn as compared to Rs 3,255 Mn in the corresponding quarter last year.

As at the end of the quarter, Infratel had 38,832 towers with average sharing factor of 2.13 times compared to 2.08 times in the corresponding quarter last year. Including proportionate share of Indus in which Infratel holds 42% of stake, on a consolidated basis, Infratel had 89,791 towers with an average sharing factor of 2.21 times as compared to 2.15 times in the corresponding quarter last year, reflecting an improvement in the tenancy ratio.

Bharti Infratel incurred a capital expenditure of Rs 2,128 Mn during the quarter on a standalone basis. Operating free cash flows during the quarter were Rs 4,978 Mn as compared to Rs 3,648 Mn in the corresponding quarter last year. The share of profits of Indus during the quarter came in at Rs 2,866 Mn as compared to Rs 2,732 Mn in the corresponding quarter last year.

5.3.6 South Asia

As on September 30, 2016, the Company had 8.8 Mn mobile customers on its network compared to 9.9 Mn as at the end of corresponding quarter last year. Minutes of usage for the quarter were at 8.8 Bn as compared to 9.5 Bn in the corresponding quarter last year. On a sequential quarter basis, customers are dropping from 9.2 Mn in previous quarter to 8.8 Mn during the quarter, primarily due to impact of biometric KYC registration process in Bangladesh.

Data customers represent 31.2% of the total customer base in the current quarter as compared to 29.3% in the corresponding quarter last year. Total data consumption during the quarter increased by 45.1% to 9.1 Bn MBs as compared to 6.3 Bn MBs in the corresponding quarter last year.

By the end of the quarter, the Company had 7,085 sites on network as compared to 7,003 sites in the corresponding quarter last year. Out of the total sites, 3G sites represented 59.0% to 4,177 sites as compared to 3,766 sites in the corresponding quarter last year.

Revenues for South Asia grew by 3.1% to Rs 4,169 Mn as compared to Rs 4,045 Mn in the corresponding quarter last year. Data revenue grew by 38.5% to Rs 896 Mn as compared to Rs 647 Mn in the corresponding quarter last year. Data revenue now represents 21.5% of mobile revenue during the quarter as compared to 16.0% in the corresponding quarter last year. EBITDA for the quarter was at Rs 210 Mn as compared to loss of Rs 242 Mn in the corresponding quarter last year. EBIT loss during the quarter was Rs 1,271 Mn as compared to EBIT loss of Rs 1,612 Mn in the corresponding quarter last year.

During the quarter ended September 30, 2016, the Company incurred capital expenditure of Rs 290 Mn as compared to Rs 1,317 Mn in the corresponding quarter last year.

Africa

In Africa, exchange rates have been comparatively stable versus the US dollar except for Nigeria. The revenue-weighted currency depreciation during the quarter has been 2.1% compared to previous quarter, mainly caused by depreciation in Nigerian Naira by 7.9%. To enable comparison on an underlying basis, all financials upto PBT and all operating metrics mentioned below are in constant currency rates as of March 1, 2016 and are adjusted for divestment of operating units for all the periods i.e. the comparison till PBT has been given below for 15 countries. PBT as mentioned below excludes any realized/unrealized derivatives and exchange gain or loss for the period.

As on September 30, 2016, the Company had an aggregate customer base of 78.1 Mn as compared to 75.4 Mn in the corresponding quarter last year, an increase of 3.6%. Customer churn for the quarter was lower at 5.3%, as compared to 5.7% in the corresponding quarter last year. Total minutes on network during the quarter registered a growth of 9.2% to 36.6 Bn as compared to 33.5 Bn in the corresponding quarter last year.

Data customers during the quarter increased by 32.3% to 18.1 Mn as compared to 13.7 Mn in the corresponding quarter last year. Data customers now represent 23.1% of the total customer base, as compared to 18.1% in the corresponding quarter last year. Data traffic had more than doubled on Y-o-Y basis to 34.3 Bn MBs compared to 15.8 Bn MBs in the corresponding quarter last year. Data usage per customer during the quarter was at 670 MBs as compared to 405 MBs in the corresponding quarter last year, an increase of 65.5%.

The total customer base using the Airtel Money platform increased by 15.3% to 9.1 Mn as compared to 7.9 Mn in the corresponding quarter last year. The total number of transactions during the quarter increased by 53.7% to 342 Mn as compared to 223 Mn in the corresponding quarter last year. Total value of transactions on the Airtel money platform has witnessed a strong growth of 53.7% to $ 3,770 Mn in the current quarter as compared to $ 2,453 Mn in the corresponding quarter last year.

The Company had added 1,470 network sites during the quarter and total network sites stands at 19,866 at end of the quarter as compared to 18,396 network sites in the corresponding quarter last year. 3G sites at 13,280 represented 66.8% of the total sites as at the end of the quarter, as compared to 11,143 sites (60.6% of total sites) at the end of the corresponding quarter last year.

Africa revenues grew by 3.7% (4.7% normalized for divestment of tower assets) to $ 898 Mn as compared to $ 866 Mn in the corresponding quarter of last year. Mobile data revenues were $ 147 Mn during the quarter, reflecting a growth of 24.9% over the corresponding quarter last year. Mobile data revenue now represents 16.3% of the total mobile revenue during the quarter as compared to 13.6% in the corresponding quarter last year.

"Our high focus on costs has resulted into lower opex at $ 480 Mn as compared to $ 506 Mn in the corresponding quarter last year. EBITDA was at $ 211 Mn as compared to $163 Mn in the corresponding quarter last year. EBITDA margin improved significantly by 4.6% (5.3% normalized for divestment of tower assets) for the quarter at 23.5% compared to 18.9% for the corresponding quarter last year," the company said.

Depreciation and amortization charges at $ 183 Mn as compared to $ 161 Mn in the corresponding quarter last year. EBIT for the quarter was at $ 28 Mn as compared to $ 2 Mn in the corresponding quarter last year. The PBT loss before exceptional items for the quarter was reported at $ 14 Mn as compared to loss of $ 40 Mn in corresponding quarter of last year. On reported basis, after accounting for the finance costs and taxes, the net loss for the quarter was $ 91 Mn as compared to a loss of $ 170 Mn in the corresponding quarter last year.

Capital expenditure during the quarter was $ 102 Mn for African operations. Investments are mostly directed towards enhancing data capabilities. Operating free cash flow during the quarter was at $ 108 Mn, as compared to $ 4 Mn in the corresponding quarter last year.