Despite reporting a quarterly loss of ₹1,035 crore for the three-month period ended December 31, 2019, investors of Bharti Airtel will take heart from the company’s financial performance, given the underlying improvement in business performance.

The Sunil Mittal-led telco posted consolidated revenues of ₹21,947 crore for the third quarter, with underlying growth of 10.5% year-on-year. More importantly, turnover from the Indian operations, which have borne the brunt of a bruising price war with Mukesh Ambani-led Reliance Jio Infocomm and Kumar Mangalam Birla-led Vodafone Idea, showed healthy growth. Revenues from India grew 9.7% year-on-year to ₹15,797 crore “led by a strong focus on quality customers, up-trading and in some part benefited by the recent tariff actions, although the full impact of the tariff actions is yet to be seen,” the company said in its earning statement issued on Tuesday after market hours.

Airtel’s average revenue per user (ARPU), a key metric of unit economics in the telecom sector, grew substantially during the quarter to ₹135, from ₹128 in the sequentially preceding quarter. Mobile data traffic on Airtel’s network at 5,357 petabytes (PB) was 73% higher than the year-ago period.

The company’s consolidated EBITDA (earnings before interest, tax, depreciation and amortisation) stood at ₹9,350 crore for the quarter, up over 48% year-on-year. The EBITDA margin reported by the company also jumped sharply to 42.6%, up 11.4 percentage points over the year earlier.

Earnings of the telcos in the October-December 2019 quarter are a crucial indicator of the future health of the telecom sector in the country (especially for Airtel and Vodafone Idea), as it is the quarter in which telcos decided to call a truce vis-à-vis aggressive pricing and undertook price hikes to improve their frail financial health. Airtel’s earnings are clearly an indication that higher tariffs, along with increasing penetration of 4G voice and data services, are working to the advantage of incumbent telcos. The January-March 2020 earnings of telcos will be equally important to watch out for.

“We added around 21 million 4G customers to our mobile network and delivered superior value to our customers through the Airtel Thanks program … We are on track to shut down our 3G networks across India and re-farm the 900 and 2100 MHz band spectrum to further boost our 4G footprint to serve the surging demand for high-speed data,” Gopal Vittal, managing director and chief executive officer, India and South Asia, Bharti Airtel said in the earnings statement. “While tariff revision undertaken in December 2019 is a welcome step towards repairing the financial health of the industry, we believe tariffs must go up further for enabling the industry to invest in emerging technologies.”

Pursuant to a Supreme Court ruling in October 2019, followed by the rejection of a review petition filed by three telcos in January, telecom companies (Vodafone Idea, Airtel and Tata Teleservices) are faced with the prospect of having to pay around ₹1 lakh crore to the government on account of statutory dues, which is calculated as a portion of the telcos’ adjusted gross revenue (AGR). These telcos have filed an application for modification of the apex court’s order, seeking its permission to engage with the government to work out flexible terms and conditions (including a stretched time window) for repayment of these dues.

Most analysts are bullish on the future prospects of players like Jio and Airtel, while concerned about Vodafone Idea’s future. Jio is a new entrant that came in with its efficient 4G LTE technology, and doesn’t suffer from legacy issues over AGR. Airtel is also ahead in the game as far as conversion from 3G to 4G is concerned and has been successful in raising debt and equity capital from the markets to the tune of ₹21,500 crore. This, along with the cash on its book, analysts feel, will be sufficient for the company to pay its share of AGR-related dues and also invest in network upgrade and expansion for future growth. Vodafone Idea, on the other hand, will have to figure out where it can muster up the financial resources to do the same, other than the cash already on its books. Birla, while speaking at a recent conference in Delhi, had indicated that Vodafone Idea’s promoters may not be willing to pump in more capital into the company.

Bharti Airtel’s share price gained 1.72% on the BSE on Tuesday to close at ₹519.10 per share. The bourse’s benchmark index, S&P BSE Sensex, gained 2.30% on the same day to end at 40,789.38 points. Over the last six months, Airtel’s stock price has soared close to 60%.

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