Bharti Airtel, which declared its fourth quarter results on Tuesday, may continue to witness competition from Reliance Jio and may not be able to go for cost reduction further. While announcing the results, the telecom major without naming rival Reliance Jio had said that sustained predatory pricing has affected the revenue.
“The sustained predatory pricing by the new operator has led to a decline in revenue growth for the second quarter in a row. The telecom industry as a whole also witnessed a revenue decline for the first time ever on a full-year basis,” Bharti Airtel MD and CEO (India and South Asia) Gopal Vittal had said on Tuesday.
Bharti Airtel reported its lowest quarterly profit in four years by registering sharp 72 per cent decline in consolidated net income at Rs 373.4 crore for the fourth quarter ended March 2017. The company’s total revenue declined by 12 per cent during the fourth quarter to Rs 21,934.6 crore from Rs 24,959.6 crore in the same period last fiscal. (Bharti Airtel 4Q earnings drag as competition hurts; all key figures in a nutshell)
Reliance Jio, backed by India’s richest man Mukesh Ambani, had launched its inaugural free voice and data plan in September last year. In December, it extended the freebies up to March 2017, much to the dismay of other operators which alleged that such offerings not only hit their profitability but were against the regulations.
Brokerage House Edelweiss which has given Bharti Airtel a ‘Hold’ rating with target price of Rs 340 believes that Bharti Airtel would continue to feel pressure from Reliance Jio on its profitability. It said,” Although Bharti Airtel has cut costs significantly leading to margin improvement, we see limited scope to further prune cost at a lower base, which will keep profitability under pressure.”
On its future growth, the brokerage house expects sustained competitive intensity to accelerate consolidation in the industry with the emergence of fewer, but stronger players. It said, “Stability in the competitive environment is pivotal for the sector’s profitable growth and we will wait for industry’s subscriber addition and churn to plateau before turning positive.”
Despite posting a weak result, Bharti Airtel shares gained nearly 8 per cent on Wednesday as its Africa following company’s subscriber additions as well as growth in Africa business. On this Edelweiss said, “Bharti has initiated a cost-cutting drive to drive profitability and is looking to consolidate operations in countries where it is ranked 3rd or 4th. In this spirit, it has inked a pact with Millicom to merge Ghanaian operations. We expect the profitability of Africa business to continue to improve, but with only 16% EBITDA contribution it is unlikely to have material impact.”
Bharti Airtel shares are trading 2.04 per cent down at Rs 365.10 in Thursday’s afternoon trade
Among the telecom companies, Bharti Airtel is the first firm to announce its fourth quarter earnings. Idea Cellular is slated to announce its results on May 13. Vodafone, the country’s second-largest operator, is not listed in India but is expected to share its financials later this month.