Stock Fundamentals

Bharti Airtel takes the right call

Bavadharini KS | Updated on August 11, 2019 Published on August 11, 2019

The company is focussing on driving data usage and retaining quality customers

Since Reliance Jio’s entry in September 2016, there has been immense price disruption in the Indian telecom industry — with rock-bottom data tariffs and free voice services. The turmoil in the industry has led to a pile up of huge debt for existing telecom players and triggered consolidation, leaving three key players — Vodafone Idea, Bharti Airtel and Reliance Jio — to compete.

Bharti Airtel, which has been tackling subscriber erosion, increasing competition and tariff volatility, posted its first ever loss of ₹2,866 crore in the latest June quarter, since its listing. This was mainly due to exceptional item of incremental provisioning for derivative liabilities pertaining to indemnities provided to pre-IPO investors of Airtel Africa; operating costs on network re-farming; higher depreciation and forex losses.

However, the company’s strategy of focussing on fewer and better-paying customers, has helped topline performance. It registered growth in consolidated revenue of 5 per cent Y-o-Y to ₹20,738 crore in the latest June quarter. Operating margins also improved, from 34.5 per cent in the last June quarter to 41 per cent in the latest June quarter.

Going ahead, Airtel has set out a strategy to retain customers, drive up data usage and increase its average revenue per user (ARPU).


Airtel’s strategy

The company’s ARPU stood at ₹196, three years ago in June 2016. Intense price wars forced the company to reduce rates and the company’s ARPU had been on the decline since then.

However, Airtel moved its focus from quantity to quality of subscribers, leading to growth in ARPU since March 2019 quarter. The company introduced minimum recharge plans and increased its retail tariffs to wean out the non-paying customers.

Unlike its rival Vodafone Idea, Airtel was able to maintain its price premium. In the recent FY20 June quarter, ARPU grew 23 per cent Y-o-Y (5 per cent Q-o-Q growth) to ₹129. This is the highest ARPU across the three telecos in the market.

Airtel hopes to improve its ARPU further and focus on increasing digital consumption by its subscribers.

Also, to drive data usage, the company has taken a call to shut down its 3G network across all circles by the end of FY20.

To start with, it has terminated 3G services in the Kolkata circle in the June quarter, which is expected to free up network and ensure better capacity for 4G usage.

This is likely to increase the data consumption, boosting ARPUs.

Airtel has seen an increase in its data consumption per customer per month — it stands at 11.9 GB in the latest June quarter, compared to Jio’s data consumption of 11.4 GB.

The company has created a loyalty programme — Airtel Thanks. This is a rewards programme launched in September 2018 and offers access to rewards, perks and privileges.

Pressure may continue

Though Airtel’s customer base fell in the last three quarters, the trend is likely to be arrested in the coming quarter. There could be a modest growth in subscriber base, but increasing ARPU will be critical.

Despite the Airtel Thanks programme and the company’s strategy to push up ARPU through tariff tweaks, there could be some more volatility in tariffs. A rise in tariff could take some time as competitive pressure from Jio does not appear to be easing.

Also, Airtel’s debt is still high at ₹1,16,645 crore and the debt-equity ratio is 1.28 times. Though the balance-sheet of the company is better than Vodafone Idea’s (debt of ₹1,70,065 crore), pricing onslaught from Jio can continue to put pressure.

Published on August 11, 2019
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