Why Bharti Airtel rallied post Q4 results, despite reporting a loss

The stock of Bharti Airtel, one of the largest telecom service providers in the country, has rallied 9 per cent post its March quarter results, despite reporting a loss of ₹4,977 crore during the quarter. The higher losses were due to exceptional items which includes charges on license fees and spectrum usage charges, interest on the recent AGR dues and operational costs such as network re-farming and upgradation programmes.

But the company registered a healthy revenue growth of 15 per cent y-o-y to ₹23,722.7 crore, thanks to its tariff hikes taken last year. Further, the company’s focus on fewer and better-paying customers has also helped the top-line growth. Operating margin (EBITDA) expanded to 44 per cent during March FY20 from 33 per cent in the same period last year. This is thanks to the rise in tariffs in December last year.

While Covid-19 has taken a toll on various businesses, telecom companies appear relatively resilient. This could be attributed to the higher usage of telecommunication and Internet services from customers since the outbreak of the virus. In the last six months, the stock of Bharti Airtel has surged 34 per cent.

While the demand for Airtel’s services is likely to remain high, debt remains a cause for concern. The company’s debt is still high at ₹1,18,859 crore and the debt-equity ratio is around 1.5x. Though the Airtel’s balance sheet is better than that of Vodafone Idea, and the company is taking measures to reduce its debt, pricing onslaught from Reliance Jio can continue to add pressure.

ARPU on the rise

In the last 2-3 quarters, Bharti Airtel’s strategy to retain customers, drive up data usage and increase its average revenue per user (ARPU) appears to have paid off. It reported an ARPU increase of 25 per cent y-o-y to ₹154 (14 per cent q-o-y). Data usage per customer, too, has risen 35 per cent y-o-y in the recent March quarter, thanks to content partnership with platforms such as Netflix and Hotstar.

The company had introduced minimum recharge plans to wean out the non-paying customers to improve its ARPU and provided attractive offers to retain quality customers. This strategy has worked well. Airtel sawnew customer addition of 75,48,000 during FY20, an increase of 2 per cent compared to the previous fiscal.

But despite a 14-51 per cent rise in tariff across plans, and loyalty programmes such as the Airtel Thanks, there could be some more volatility in tariffs. Also, competitive pressure from RJio could continue. With TRAI yet to address the floor price issue, ARPU could be under pressure.

To meet the need of faster data connectivity and speed, the company will continue to expand and invest in its 4G network in the coming quarters. It has also started investing in 5G connectivity.

Further, with many companies adopting work from home, home broadband, which registered a growth of 3 per cent y-o-y in the recent quarter, is set to increase further.