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UPDATE 3-Bharti's home woes ease; African margins a worry

Published 11/10/2010, 07:05 AM

* Q2 net profit 16.6 billion rupees, vs consensus 18.4 bln

* Revenue up 47 percent in fiscal Q2; India ARPU down 20 pct

* Says to roll out 3G services in current quarter

* Shares close 1.8 percent lower

(Recasts, adds management comment)

By Devidutta Tripathy

NEW DELHI, Nov 10 (Reuters) - Bharti Airtel, India's top mobile operator, signalled stability at home after a price war, while its new loss-making African business will likely remain a drag on earnings in coming quarters.

Bharti, which now operates in 19 countries across Asia and Africa to be the world's fifth-biggest mobile operator, missed forecasts on Wednesday with a 27 percent fall in fiscal second-quarter net profit to 16.6 billion rupees ($374 million).

Its performance in the three months to end-September was hit by the effect of a price war in its core domestic market and the loss-making operations Africa, a market it said was the "biggest future continent" for telecoms.

Manoj Kohli, chief executive for international operations, would not tell reporters when Bharti would turn around the Africa operations acquired this year in a $9 billion deal, saying it had "arrested" a declining revenue trend in its five months owning the business.

MF Global telecoms analyst Naveen Kulkarni said: "In the Africa business, margins will continue to be under pressure. We expect margins to trend lower from current levels over the next two quarters. Africa adding to profits will take some time ... We can expect something from Q2 financial year 2011/12".

Shares in Bharti, valued by the market at $28.6 billion, closed 1.8 percent lower at 328.15 rupees.

Bharti, 32-percent owned by SingTel, Southeast Asia's top phone company, acquired its African telecom assets from Kuwaiti group Zain in June, leaving it with 188 million mobile customers at end-September.

It has cut prices in 10 of 16 African countries in which it operates to boost usage in a market where less than a third of the population have mobiles, compared with nearly 60 percent in India, and where usage in call minutes is a quarter of India's.

In India, the outlook for Bharti and rivals has improved as prices have stabilised after a price war last year in the 15-player telecom market hit earnings.

There have been no big price cuts since April, after call prices in India fell as low as 0.4 U.S. cent a minute, with most of the price declines taking place in the second half of 2009.

"In a hypercompetitive environment now there is a bit of stability coming to the biggest brands in the market place," said Sanjay Kapoor, chief executive for India and South Asia.

Bharti's founder, billionaire Sunil Mittal who started out selling bicycle parts, saw an opportunity in telecoms in the mid-1990s as India opened up to the private sector. Bharti began with a licence to operate a mobile network in Delhi.

After spending $24 billion this year to grab 3G licenses and wireless broadband radio airwaves, Indian companies are gearing up for the commercial rollout of 3G, bringing faster internet browsing and premium services such as video calling.

Bharti said it would launch 3G services across India by the year-end. Earlier this month, Tata Teleservices, India's No 4 mobile carrier, became the first private operator to launch 3G services in some areas.

Expansion of high-margin wireless data services should be a positive for operators, although the uptake of premium services may take time.

RESULTS LAG ESTIMATES

Bharti said second-quarter revenue rose 47 percent to 152 billion rupees, helped by Africa. Net profit had been forecast at 18.4 billion rupees on revenue of 153 billion, a Reuters poll found.

The consolidated EBITDA (earnings before interest, taxes, depreciation and amortisation) margin, a key gauge of profitability, dropped to 33.7 percent from 41.4 percent.

Net profit for India and South Asia operations was 20.4 billion rupees, don 9.9 percent year-on-year but 7.1 percent higher than the June quarter.

Bharti stock is flat this year, compared with the broader market's 18 percent gain. (Additional reporting by Ami Shah in Mumbai; Writing by Prashant Mehra; Editing by Muralikumar Anantharaman and Dan Lalor) ($1 = 44.4 rupees)

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