Expectedly, Airtel reported weak numbers for the second quarter of 2017-18. While its consolidated revenue fell 11% year on year (y-o-y) to Rs 21,777 crore, consolidated net profit plunged 75% y-o-y to Rs 586 crore.
The ongoing cutthroat competition in the telecom industry, thanks to Reliance Jio’s entry a year back, is the main reason for Airtel’s poor show. However, analysts are getting bullish on the counter.
The bloodbath is almost over and the sector is entering a consolidation phase. Marginal players have started moving out. And with the Vodafone-Idea merger, the industry is moving towards fewer players. More importantly, Jio has started increasing prices slowly—it has already raised them 4-times. This means that the fall in the average revenue per user (ARPU) will end soon. Being the leading telecom player, Airtel will be the main beneficiary of the consolidation happening in the industry.
Also, the entry of Jio has widened the data usage market, helping all major 4G players including Airtel. The company’s data volume jumped up 66% quarter on quarter (q-o-q). Airtel’s African operations have also improved significantly during the last quarter. Thanks to a 7% q-o-q increase in its African revenue
, the company’s consolidated revenue remained flat on q-o-q basis.
Airtel’s cost control measures—’war on wasteful expenditures’—have also started yielding results. Its EBITDA (earnings before interest, tax, depreciation and amortisation ) margins for domestic and African operations improved 30 and 430 basis points respectively q-o-q. Due to its stable revenue and improving margin, Airtel was able show a 59% jump in its consolidated net profit, q-o-q.
With the competition subsiding, Airtel is expected to report good numbers in the next financial year (2018-19). Since the company has a lean cost structure, a major part of improvement in ARPU will reflect in its EBITDA. According to consensus estimates, its consolidated revenue and net profit are expected to rise 9% and 126% respectively. Though Jio’s entry has increased the capex requirement of other players—analysts expects Airtel to increase its capex outlay by 25% in 2017-18—most of it will be front loaded. With mart acquisitions—Telenor and Tata Telecom—Airtel has also fortified its spectrum and subscriber base. Once the capex pressure ends, the company is expected to start generating free cash flows in 2018-19.
Source – economictimes.inatimes.com