If the market and analysts have discounted the Rs 5,237 crore consolidated net loss posted by Bharti Airtel during the January-March quarter, it’s due to the provisioning of around Rs 7,000 crore for the adjusted gross revenue dues arising as a result of Supreme Court verdict last year and one-time spectrum charge which is pending before the Mumbai high court.
Barring the provisioning which made the company go into red against analysts expectations, the company beat estimates on all other fronts. In fact, it performed much better than rival Reliance Jio on several fronts, especially average revenue per user where it notched Rs 154 during the quarter against Rs 134 in the preceding quarter. This was much higher than Jio’s Rs 130 against Rs 128 in the preceding quarter. Bharti has touched the Rs 150 range of Arpu after more than three years.
Bharti’s India wireless revenue growth at 16% quarter-on-quarter, was significantly higher than Jio’s 6% q-o-q, a first since Jio started charging for services in 2017. “This print reinforces our view that Bharti may have closed the gap with Jio on revenue trends, and market share between the two players should not diverge from hereon,” Goldman Sachs noted.
The 16% sequential growth in wireless revenues was highest for the company in the last 12 quarters. Similarly, consolidated revenues which were up 8% q-o-q, was its highest for the company in a decade and ahead of estimates. Consolidated Ebitda was up 10% q-o-q, again ahead of estimates, which was driven by 80 bps q-o-q jump in margins to 43%.
Since all the three operators had increased tariffs by up to 50% in December 2019, the full impact of it was seen during the January-March quarter. Bharti’s jump being much higher that Jio’s signals that Bharti is adding higher Arpu generating 4G subscribers while Jio’s subscriber addition, though higher than Bharti’s is mostly for low-end JioPhone users, thus not translating into higher Arpu.
Bharti being able to improve its Arpu by Rs 27 in the last two quarters also dispels any apprehension of down trading by consumers as a result of tariff hike. “We have always maintained that wireless service is a utility/staple; extent of discretion is low; at least at the current price points in the market, even after the recent price hikes, price-value equation continues to be loaded in favour of the consumer. At a certain higher Arpu level, elasticity would be a genuine concern, but not at this point, in our view,” Kotak Institutional Equities said in its note on the results. “Overall, we continue to like what we see. Bharti’s top-notch execution places it well to capitalise on what should be a good 2-3 year phase of price increases in the sector. Covid-19 could drive inflection and create some incremental value in India Homes and Enterprise businesses as well. We remain constructive,” Kotak added.
Another area where Bharti has maintained its lead over Jio is on the data usage front. During the quarter, data usage per customer per month stood at 15 GB against Jio’s 11 GB.
“We believe that an Arpu of Rs 154 is inadequate to turn a reasonable return on capital as a company and remain hopeful that Arpus will get to Rs 200 in the short term and eventually to Rs 300 which is where it should be for a business like ours. Of course even at this level of Arpu we believe we will be very well placed to serve all the lower end customers who may have the capacity to pay Rs 100 or less,” Gopal Vittal, managing director and CEO, India and South Asia, said on an investor call on Tuesday.
However, regulatory costs including AGR dues and one-time spectrum charge continue to be a big drag on Bharti whereas for Jio there’s no such legacy cost. Going ahead if spectrum auction takes place it would strain Bharti’s finances, which may not be the case with Jio.