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Airtel Has Lowest Indian ARPU in 8 Quarters, and Boosts Consolidated Profits Only By Exceptional Item

Bharti Airtel announced results today and it seems like things are quite tough for the telco.

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While this sounds good (at least they are making a profit!) there are some serious problems with the above:

  • They have an exceptional gain of 660 cr. on the back of a 1000 cr. profit on the sale of towers in Africa, and some adjustments for depreciations and others. This is a one timer, so that net profit should slide back to 1,000 cr. or so if you removed that item (and correspondingly reduced taxes)
  • The interest cost is significantly higher, and in the Indian entity. This seems to be because they can no longer charge the interest costs to the capital accounts (where it is slowly depreciated) because they have started 4G operations. Anything that’s “in construction” can see the interest on that debt go into capital so that it increases the cost of that asset, which depreciates over time.
  • EBIDTA growth is just 6.7% in rupee terms. This is horribly low.
  • In fact the Indian entity (standalone) sees a -15% (Drop) in EBIDTA! Net profits of the Indian entity are down 55%.

Plus the Average Revenue Per User (APRU) has fallen to the lowest in eight quarters:image

 

With over 25 cr. subscribers in India, subsequent growth will be quite tough going forward – for one, there’s competition, and for another there is the fact that we have just 120 cr. people, and possibly just 75 cr. adults, and from here on, it will be a fight for marketshare.

Overall, this is not a company that should attract the high P/Es we seem to be paying for. At single digit growth numbers, Airtel will struggle to maintain valuation.