Q2 Results: Bharti Airtel Posts Surprise Profit On Deferred Tax Gain

Bharti Airtel Ltd. reported a surprise net profit in the July-September quarter aided by a one-time deferred tax gain without which it would’ve suffered a loss.

India’s second-largest telecom network’s net profit rose to Rs 119 crore in the three months ended September from Rs 97 crore in the preceding quarter, according to its stock exchange filing. Analyst estimates compiled by BloombergQuint had pegged a net loss of Rs 990 crore. Bharti Airtel posted a profit because of a deferred tax gain of Rs 2,633 crore in the reporting quarter.

• Revenue rose 1.7 percent sequentially to Rs 20,423 crore.
• Operating profit fell 7.7 percent to Rs 6,244 crore.
• Operating margin narrowed 300 basis points quarter-on-quarter to 30.5 percent.

Bharti Airtel has only been posting profit for the past two quarters due to its deferred tax gains. And that shows how the price war triggered by Reliance Jio Infocomm Ltd. is still hurting rivals. Mukesh Ambani’s telecom venture offered cheap wireless data to capture customers in the world’s second-largest telecom market, sparking a tariff war and consolidation in the industry. Airtel, too, lowered its tariffs to retain subscribers.

That hurt the average revenue it earns from a user every month. Airtel’s ARPU has nearly halved to Rs 101 from a industry high of Rs 196 nine quarters ago.

The pressure on ARPU came from the consolidation of Telenor customers which Airtel acquired, and consumers switching to lower-priced postpaid plans offering similar benefits. Bharti Airtel’s margin in India was also impacted by a rise in diesel prices, a rapid network rollout and higher tower rentals due to the exits by Vodafone India and Idea Cellular Ltd.

Airtel’s Africa business, however, continued to do well. Revenue from the region rose 6.87 percent over the previous quarter to Rs 5,647.2 crore. It also commanded a higher margin in Africa at 37.1 percent.

That has been enough for Bharti Airtel to cash in on the growth. On Tuesday, it announced that it will dilute its stake in the African business and raise close to $1.25 billion. Among the buyers will be prominent investors like Warburg Pincus, Temasek, Singtel and the SoftBank Group.

Other Highlights

• Finance costs rose 40 percent to Rs 2,986 crore.
• Net debt increased 10 percent to Rs 1.13 lakh crore.
• Net debt-to-Ebitda ratio rose to 4.65 from 3.61.
• Total customer base stood at 32.97 crore.
• Total capital expenditure during the quarter stood at Rs 7,685 crore.
• Airtel users consumed an average of 9.2 GB data a month.

The stock closed 5.1 percent lower today ahead of the earnings announcement. It fell 11.36 percent in the July-September period compared with a 13.8 percent decline in the benchmark BSE Telecom index.