2018 Q 1 Results - Bharti Airtel hits a new low, but bottom is nowhere in sight

Bharti Airtel Ltd reported a consolidated pre-tax loss for the first time in years, thanks to continued erosion in the profitability of its mainstay India wireless business. The mobile business reported a loss before interest and tax of ₹878 crore, or 8.4% of revenue. A year ago, the segment had an Ebit (earnings before interest and tax) margin of 9.8%.

What’s more, cash burn from wireless operations in the June 30,2018 quarter  stood at ₹4,175 crore, almost as much as the deficit in the whole of fiscal year 2017-18. And as if all this isn’t bad enough, there’s more pain to come.

Reliance Jio Infocomm Ltd has only recently launched post-paid and international calling services, with its impact yet to be seen. Almost in tandem, it has become more aggressive in pursuing feature phone users by lowering the entry cost of its JioPhone. Both these segments account for a sizeable share of Airtel’s revenues, and defending its share can be a costly affair.

The silver lining in Airtel’s results is that it has been far more successful than Vodafone India Ltd in defending its subscriber and revenue shares. The latter reported a 1.3% and a 1.6% sequential decline in subscribers and revenues, respectively, in the June quarter. Airtel did far better, with its subscriber base growing by 4% sequentially on an organic basis. Its revenues were flat, after excluding a contribution of around ₹125 crore owing to the consolidation of Telenor India’s operations from the middle of the quarter.

Of course, Airtel was far more aggressive in the marketplace, offering competitive tariffs to a set of its customers. As a result, its Arpu (average revenue per user) fell 6% to ₹109, excluding the newly acquired Telenor subscribers. Vodafone’s Arpu fell at a much lower pace, but it also ended up losing some subscribers to competition.

From an investor’s perspective, another consolation is that Airtel’s Africa business continues to grow profits steadily. The African business now accounts for over 70% of consolidated Ebit, providing a meaningful buffer for the company.

The worrying bit, of course, is that losses in the Indian wireless operations continue to mount. Pre-tax losses nearly doubled sequentially to around ₹1,000 crore after excluding the contribution from Telenor. And, as pointed earlier, they are likely to increase further in the coming quarters