SingTel – BT

Profit fall puts pressure on Bharti to wrap up Zain deal

Bharti Airtel’s first profit fall in three years puts more pressure on India’s top mobile operator to quickly integrate its US$9 billion purchase of Kuwaiti Zain’s African assets to cope in a cut-throat market.

Bharti, 32 per cent owned by Singapore Telecommunications, has been caught in a margin-destroying price war with Reliance Communications and other rivals in the world’s fastest-growing and arguably the most competitive market.

In a sector that is signing up 16 million wireless users on average each month and counts overseas players such as Vodafone, NTT DoCoMo and Telenor, call rates have pummelled to as low as 0.7 US cents per minute.

‘The humungous competitive activity to increase market share is only going to increase in the near future before it leads to consolidation in the sector,’ said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services. ‘Bharti is a long-term play and it remains to be seen how it will use its overseas presence to boost earnings growth.’

Last year, Reliance Comm and Bharti were the only two stocks to fall in the 30-share Bombay Stock Exchange index, which rose 81 per cent. So far this year, Bharti is down 9 per cent and Reliance Comm has lost 2 per cent in a steady market. Bharti posted a worse-than-expected 8 per cent drop in January- March profit, its first fall in profit since it began reporting under US GAAP in 2006-2007.

Sanjay Kapoor, chief executive of Bharti’s South Asian operations, said: ‘The propensity (for call charges) to drop any further on financially sound grounds is not there.’

In March, Bharti struck a US$9 billion deal to buy telecoms operations in 15 African countries from Zain, and expects to become the world’s No 5 mobile firm.

The deal by Bharti, which dominates India’s mobile market with about 128 million subscribers in the country’s 580 million users, comes after two failed attempts to finalise tie-ups with South Africa’s MTN.

Chairman Sunil Mittal said in a statement Bharti was working towards a closure of the Zain transaction at the earliest but the company had not set a time frame.

The Zain deal must be approved by regulators and governments in at least two of the African markets have weighed in against the deal. There is also a dispute about minority ownership of Zain’s operations in Nigeria.

Bharti’s net profit fell 8 per cent to 20.55 billion rupees (S$633 million) under the US accounting standards in its fiscal fourth quarter.

Revenue rose 2 per cent to 100.56 billion rupees. A Reuters poll of 12 brokerages had forecast a net profit of 20.78 billion rupees on revenue of 98.15 billion rupees.

Average revenue per user fell 28 per cent to 220 rupees as more than half of the new users were from rural areas, where the average talktime is lower than their urban counterparts.

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