Bharti Net Dives 38% on Interest Costs, Fx

Profits from India, South Asia down 28%, Africa operations too weigh Bharti Airtel missed analyst estimates to report a bigger-than-expected drop in profit as the country's largest mobile operator remains weighed down by increased interest costs and forex losses while competing in a home market that is feeling the pangs of slower growth.  The telco's net profit fell by 38% to . 1,027 crore for the September quarter, its lowest quarterly profit in the past five years. Bharti attributed the fall, the seventh in as many quarters, to a three-fold rise in interest expenses to . 1,119 crore and a 23% jump in depreciation and amortisation costs arising from the rollout of 3G services. It said a weakening rupee increased the cost of servicing foreign debt leading to a forex loss of . 239 crore for the period compared to a gain of . 249 crore a year earlier.  But some analysts expressed concern at Bharti's operational performance. "The numbers on the operating front as well as its overall performance are below expectations. We are concerned about India as the company has seen a de-growth in overall minutes on a sequential basis for the first time despite adding 3.7 million new customers during this period," said Sangeeta Tripathi, an analyst at Mumbai-based brokerage Sharekhan. The company's overall minutes of usage fell by 2% for the September quarter from the June quarter.  Profits from India and South Asia were down 28% at . 1,452 crore despite a 11% jump in sales. Average revenue per user (ARPU), a key metric of profitability, fell 9% in India to . 183 a month as against . 216 for the year-ago period.Pressure on Bharti's Profits & Margins  Bharti's results indicate that 3G expansion costs and large interest payouts for thousands of crores in loans borrowed to buy third-generation airwaves will squeeze profits and margins of all leading mobile phone companies in India for the considerable future.  The company's total debt is around $13.1 billion.  Mobile phone companies are also confronted with slowing growth as customer additions have fallen dramatically with India's tele-density crossing 70%. They have ended their bruising tariff war but attempts to increase call rates further could lead to customers making fewer telephone calls. In July, Bharti had raised call tariffs by up to 20% in select regions, which has now been extended to all parts of the country. The company plans to migrate all its 173 million customers to the increased tariff structure by March next year.  Idea Cellular, the only listed telco in India that has detailed its July-September earnings, had reported a 41% drop in quarterly profit over the year-ago period citing interest costs and foreign exchange losses. Bharti's shares fell briefly in the morning at the Bombay Stock Exchange but recovered later to close at . 397.95, up 1.38%.  Its shares are up 10% this year, outperforming a near-14% fall in the broader market. Idea Cellular's shares have risen 41% and those of Reliance Communications have fallen by nearly 42% during this period.  Bharti's African operations, which it acquired from Kuwait's Zain last year in a $9 billion debtfunded deal, are still making losses and tariff wars continue to rage in some markets in which Bharti operates. High capital and operating costs of its African assets have seen its losses from that continent rise 12.7% to . 427 crore for Septemberend versus . 379 crore for the corresponding period last year. On a sequential basis, its Africa losses have gone up by 41.4%.  "It will take some more time for the Bharti brand to gain acceptability in Africa. It may not be possible to meet the time frame they had originally factored in for Africa," said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities Limited.  The Bharti management said underlying trends were positive and expressed confidence that data growth in India will offset 3G launch costs and added the turnaround strategy for its struggling African operations was on track. "Nonvoice revenues now contribute 14.5% of our sales. We have about 7 million 3G customers in India and a quarter of them use this service regularly," said Sanjay Kapoor, the company's chief executive for India and South Asia.  Manoj Kohli, the chief of Bharti's African business, said the company was on track to meet its target of $5 billion in revenues and $2 billion in core earnings, or EBITDA, for the year to March-end 2013. "Most of the losses in Africa were due to forex fluctuations…We are making good progress…We are actually more confident. Margins have improved to 26.2% from 23.2% a year ago," he added.  The company's overall revenues increased by 13% to . 17,270 crore in the second quarter. Earnings before interest, tax, depreciation and amortisation, or EBITDA, a key indicator of profitability, was up 13% at . 5,815 crore from . 5,138 crore a year ago. Kapoor pointed out that the increase in tariff effected earlier this year had led to the company arresting the slide in its rate per minute. "We now earn 43.2 paise for every minute of traffic we carry, an increase of 1% from the June quarter," he said.  "The increased tariffs had minimal impact in Q2. It will be bigger next quarter, but the final shape will emerge in Q1 of next year," he added.  According to Bhavesh Gandhi, research analyst for India Infoline, the 1% rise in rate per minute was 'encouraging'. "This augurs well for the second half of this year when the tariff hikes will begin to reflect. Idea Cellular has also seen a similar trend despite Q2 being a typically weak quarter," he added.