Africa weighs on Airtel's Q1 results

Airtel posts 33.6% decline in net profit as Africa weighs on earnings
Sunil Mittal, chairman, Bharti Airtel, said the company was continuing to expand its network in Africa.
Sunil Mittal, chairman, Bharti Airtel, said the company was continuing to expand its network in Africa.


Bharti Airtel, India’s biggest mobile operator, experienced a 33.6% decline in net profit in Q1 2011 compared with the same period in 2010, as the cost of operating and integrating its African operations continued to weigh on earnings.

Airtel, which acquired most of Kuwait-based Zain Group’s African operations last year, announced a net profit of $1.35 billion in Q1 2011, compared with $1.99 billion in the same period last year.

Airtel attributed the decline in profit to a $333 million increase in “net interest outgo”, forex restatement losses of $152 million, re-branding expenses amounting to $76 million, and an increase in spectrum charges in India amounting to $59 million.

Consolidated EBITDA margin for the year also declined by 6.5% over the previous year, to 33.6%, which the company attributed to pricing pressure in India and South Asia and lower margins in its African operations.

A breakdown of the company’s results revealed the extent of the cost of its African operations. Opex for Airtel’s African mobile operations was $680 million in the three months to March 31, a decline from the previous quarter when opex amounted to $721 million.

Airtel posted a net debt of $1.58 billion from its African mobile operations, down from $1.63 billion the previous quarter.
The company also managed to increase revenues from its African operations to reach $924 million in Q1 compared with $911 million in Q4 2010 and $838 in Q3.

Airtel added 2.08 million mobile subscribers in Africa in Q1, giving it a total of 44 million subscribers on the continent. However, monthly churn also rose to 6.2% during Q1, compared to 5.9% the previous quarter and 5.8% in Q3 2010.

The company’s overall customer base reached 220.9 million, across 19 countries, at the end of Q1 2011.

K.K. Mital, head of portfolio management at Globe Capital, told Reuters that an improvement in the company's African operations “will be key for its earnings prospects”.

“In the short-term, Bharti's earnings will continue to be weighed down by losses in African operations as well as interest payments on loans it had taken,” he said.

Sunil Bharti Mittal, chairman and managing director, Bharti Airtel, remained upbeat about the company’s performance.

“Bharti Airtel exhibited strong performance this year. The new Airtel brand has been a tremendous success in all our 19 countries. In India, we have been focusing on building a robust 3G network to meet the increasing data needs of a young population.

“In Africa, we are rapidly expanding our network coverage, improving distribution width and increasing our efficiency and productivity standards,” he said.

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