Wednesday, Apr 28, 2010

(Adds company, analyst comments, share price)

By R. Jai Krishna and Romit Guha

Of DOW JONES NEWSWIRES

NEW DELHI (Dow Jones)--India's Bharti Airtel Ltd. (532454.BY) Wednesday posted an 8.2% fall in net profit for the fiscal fourth quarter as cut-throat competition in the world's fastest growing telecommunications market weighed on earnings.

Dented margins and a falling average revenue per user, or ARPU, amid declining call rates for India's largest mobile phone operator by subscribers were all evidence of the intense rivalry in the country.

Several service providers have entered India's telecom industry in the past year with cheap call charges to attract subscribers, forcing established companies such as Bharti Airtel to slash tariffs. For instance, Videocon Telecommunications Ltd. and S-Tel Pvt. Ltd. both launched services in the quarter to March.

But Bharti Airtel says the stiff price wars are in the past now and the company finally recorded a rise in average minutes of usage per user after reporting a decline for six consecutive quarters.

"We do believe that the temporary phase is out and that we have emerged much stronger in the process out of this very challenging time," said Akhil Gupta, deputy group chief executive, Bharti Enterprises, the parent company of Bharti Airtel.

Net profit for the January-March period declined to INR20.55 billion from INR22.39 billion a year earlier, even though the profit in the quarter just reported was helped by a foreign exchange gain of INR1.57 billion against a loss of INR2.24 billion.

The company added 8.8 million users during the quarter, helping revenue to rise 2.4% to INR100.56 billion from INR98.25 billion. Its total user base in India touched 127.62 million, giving it a 22% market share.

The results, based on U.S. accounting standards, were almost in line with analysts' projections. The average of estimates in a Dow Jones Newswires poll of 12 analysts had forecast fiscal fourth quarter net profit at INR20.63 billion on a revenue of INR98.14 billion.

"The results have been mixed. While the revenue was slightly better than expected, margin pressures offset the revenue growth," said Sanjay Chawla, an analyst at Mumbai-based brokerage Anand Rathi.

The stock fell to an intraday low of INR292, but is now down 0.2% at INR297.75, while the benchmark Bombay Stock Exchange's 30-stock Sensitive Index is down 0.8%.

Bharti Airtel, about 32%-owned by Singapore Telecommunications Ltd., competes with Reliance Communications Ltd., the local unit of U.K.-based Vodafone Group PLC and state-run Bharat Sanchar Nigam Ltd., among 14 others, for a share of the world's second-largest mobile phone market that had 584.32 million subscribers at the end of March.

The company made two acquisitions during the fourth quarter in a bid to offset stagnating growth at home.

In January, it bought a 70% stake in Bangladesh's Warid Telecom. In February, it agreed to buy most of Kuwait's Mobile Telecommunications Co.'s (ZAIN.KW) African assets in a deal to make it the world's fifth-largest mobile phone operator by subscribers.

Bharti Airtel will close the Zain deal "at the "earliest", Chairman Sunil Mittal said.

ARPU, Margins Down

The ARPUs of telecom operators have already been hurt with their expansion into lower revenue generating rural areas that may be densely populated but mostly have price sensitive customers. The intense price war has further pressured ARPUs.

Bharti Airtel's ARPU was at INR220 in the fourth quarter, 4.3% lower compared to INR230 in the previous quarter ended Dec. 31.

Earnings before interest, taxes, depreciation and amortization, or ebitda, margin - excluding acquisition costs - contracted to 39% from 40% in the fiscal third quarter, as lower tariffs hurt and the company continued to spend on adding users and operating its network.

The acquisitions in Bangladesh and Africa shaved off another 100 basis points from the ebitda margin, bringing it down to 38%.

"The margins are likely to be under pressure going forward mainly due to costs related to the Africa expansion and 3G (third generation bandwidth) bids," Anand Rathi's Chawla said.

Bharti is engaged in a bidding war - termed "aggressive" by Bharti's Gupta - to acquire a slot of pan-India bandwidth to offer the 3G services in India.

It plans to spend $1.5 billion to $1.8 billion as capital expenditure, including 3G roll-out costs, in the current fiscal, and about $800 million on its Africa expansion, Gupta said.

-By R.Jai Krishna and Romit Guha, Dow Jones Newswires, +91.11.4356.3333; krishna.jai@dowjones.com

(END) Dow Jones Newswires

28-04-10 0827GMT