The Hindu Business Line : Capex, forex fluctuations impacted net profit: Bharti

BHARTI Tele-Ventures has announced its results. The company's third quarter consolidated net profit is up 4.6 per cent at Rs 545 crore (Rs 520.8 crore). Its Q3 consolidated revenues is up 11.7 per cent at Rs 3,026 crore (Rs 2,709.1 crore). Its EPS is at Rs 2.88.

The Managing Director at Bharti Tele-Ventures, Mr Akhil Gupta, says that the company's net profit has been affected in Q3 due to capex and forex fluctuations. He adds that they have no plans for acquisitions as of now. He further says that the introduction of the `life-time validity' scheme has impacted their OPMs.

He expects tariffs to come down as well as some consolidation in the telecom industry. Meanwhile, the company's board has approved that Bharti Tele-Ventures Ltd will be renamed Bharti Airtel Ltd.

Excerpts from CNBC-TV18's exclusive interview with Mr Gupta:

While the revenue growth is in line with CNBC-TV18’s estimates, the net profit growth is lower than your revenue growth and a bit lower than our estimates. Any bottomline pressures that you saw in this quarter?

The stage of development at which our company and this industry is, the net profit is not a very relevant factor to be seen and I think the revenues and the EBITDA are important at this stage, because there is so much of capital expenditure going on and as far as street estimates are concerned, it is very difficult to estimate net profit because of exchange fluctuation, derivative accounting, differed tax and even the depreciation assessment. So, at this stage of development and growth, revenues and EBITDAs are the critical factors.

But I believe your EBITDA margins have also come off by 70 bps between quarters, that is last quarter to this quarter. Is it true and how would you explain that?

As per the reported numbers, yes, it is 37 per cent versus 37.7 per cent and the only reason why that happened is because we introduced the lifetime validity product, which has lifetime validity as well as no processing fee and similarly there was no processing fee for the additional top-ups either. So we thought that with the lifetime product we are deferring the revenue recognition over 18 months and to keep it consistent even on other products, we have deferred revenue recognition over the validity period. So that has brought the revenue down by Rs 32 crore and EBITDA by Rs 28 crore and if not for this, then the EBITDA would have been marginally higher than the last quarter.

With the kind of schemes that you are launching, would it be fair to say that you could see a fall in the effective rate per minute; although you do not like the RPUs so much?

I think, perhaps, going forward, effective rate per minute in this industry will come down, but if one looks at the elasticity of demand and the increase in the number of minutes, which I have given in our quarterly report, for example for one year the total minutes of use has gone up by 90 per cent and, therefore, the costs also fell simultaneously. So, if one can maintain the margins, then it is okay. The falling realised rate per minute is a little bit of reality in our industry.

Do you think we are beginning to see another level of tariff changes or tariff cuts, which could actually change or pressurise the dynamics of the business or operating levels of the business going forward?

We have lived with that for the last 10 years and it keeps happening all the time, but if the growth is what it is, then, for the first time we have crossed 10.8 million new additions in the quarter and we are more like China now, adding 4.4 million in December. If this growth continues, no doubt it will, then we are confident that the momentum will sustain and these things will get managed.

Is that a conscious strategy at Bharti, and do you just want to get the customer into your fold and probably the profit will follow some quarters down the line?

I do not think it is a correct statement if looked at our performance quarter after quarter. Profitability has been rising and not that it will come sometime in future, but it is very much keeping in pace with the growth, the margins, capital productivity, with operating efficiencies intact and also the revenues are galloping. For instance, in the last five quarters they have gone up from Rs 2,000 crore to over Rs 3,000 crore this quarter, which is the first for us. So, the profitability is keeping pace and not lagging behind.

Do you think you will be able to lower your margins around this level of 37 per cent, given the kind of new schemes that you are offering now?

I would not talk about individual quarter, because in our industry, each quarter could have some changes but on a longer-term basis, I feel very confident about that.

Could you give us some sense about the kind of market share you have? You spoke about the net additions and how they are accelerating. How much of this incremental net-adds are you able to get in terms of your market share?

We got almost 2.4 million in this quarter. So, we are maintaining the market share and we believe that in terms of revenue market share we have even higher. We hope the revenue shares of each operator would be disclosed soon officially, so that everybody can see what the respective revenue market shares are.

Have you lost in this quarter any incremental market share or momentum in incremental market share to the Tata Indicomm offer?

No. I think every time somebody comes out with an individual offer, which is very attractive to the market, there is a bit of a swing in the market share. But on an overall basis, we are gaining customer market share and revenue market share.

Having looked at the kind of explosion that we have seen to additions because of the new schemes partially over the last couple of months. Have you upped your internal assessment of how much this market could grow over the next four quarters?

We do keep trying to do the assessment, because that is the part of the planning process. I think our own assessment has been very robust right from the beginning. On a longer-term basis, we are bullish about what the growth prospect in the Indian telecom market can be. So, we are always prepared. Ours is a very modular industry, so you can always up or down the capacity depending on how the growth is taking place. The growth, which we have seen recently, is definitely making us re-look into much larger growth plans.

What about tariffs? Do you think with these new offers you can save any of its degree of confidence that we have scratched the bottom or there could be even lower levels to go down to?

There must be absolutely low levels for the tariff to go down. But one of the factors is that there is the 30 per cent plus taxation still on the telecom sector. We are hoping that the rationalisation in the licence fee and the excess deficit charge will happen very soon. As an industry, and particularly as Bharti, we are absolutely committed that the day it happens the same evening we will pass on the benefit to the customer. So, some tariff decline is very healthy because the rationalisation of taxes is about overdue in this industry.

Why the name change to Bharti Airtel?

At the time the company was set-up, which was Bharti Tele-Ventures, this was a holding company. We would have Bharti Cellular and Bharti Telesonic and several companies getting into different kind of businesses or different verticals. They all have been merged into one and therefore Tele-Ventures is more like a holding company name. This brings synergy between the consumer brand and the corporate brand. Airtel is a very well known brand and so is Bharti. The board considered that Bharti Airtel Ltd would be the right name.

Anything further to report on the Vodafone association? Have you had any further dialogue with them on a greater involvement in the business or the possibility of them augmenting their stake from what they picked up or what you reported last quarter?

There is no talk on any augmentation of their stake. But definitely there are on-going discussions about doing more on preferred roaming, sharing their best practices, getting their experience on Vodafone live and getting some new products. Those are the on-going discussions with Vodafone and also with Singtel and their associates. Those discussions are carried on, on a routine basis.

Would you expect to see any more consolidation in the industry over the next six months? Given how things are staking up, from an industry perspective and whether you and Bharti would play or expect to play any role in that?

I do expect some more consolidation, perhaps of some of the small players could happen. But at this point in time, Bharti does not have any firm plans towards that.

Did you, at any point, explore any kind of an association, however loose, in a strategic sense or an equity sense with Tata Tele Services?

They are on CDMA so I do not know where there can be any synergy.