Bharti sells stake to ME investors as profits drop

Indian market leader Bharti Airtel is selling a 5% stake to Middle Eastern investment group the Qatar Foundation Endowment (QFE) for INR68 billion ($1.26 billion). The QFE is acting on behalf of the Qatar Foundation, a non-profit organisation owned by the Qatari royal family.

The sale is timely, as Bharti’s fourth quarter results were far weaker than expected, with net profits down by close to 50% year-on-year. This has been attributed to taxes, depreciation, higher interest rates and losses accrued by its African ventures.

The results mark the thirteenth consecutive quarter in which the operator’s profits have decreased, with net profits for the year the lowest they have been in seven years. However, there were positive growth indicators, with consolidated revenues rising by 9.2% for the quarter and 12.4% for the year, totalling INR204.5 billion and INR803.1 billion respectively.

QFE’s acquisition will likely go some way towards lowering Bharti Airtel’s net debt levels, and could also assist with the operator’s future growth strategy – the additional investment could, for example, be used to buy out the remaining minority shareholders in Bharti’s African operations, or acquiring additional spectrum in its home market.

Bharti Airtel chairman Sunil Mittal said of the deal: “This strategic partnership with QFE demonstrates the confidence they have in the company and our strategy for growth.”

While profits have indeed fallen, there are positive signs: mobile internet services have gained traction in India, growing by 71%, and its African revenue grew by 12.6%. In addition, Digital TV and B2B services have seen improved sales. Indian ARPU for voice and data is also up, improving subscriber quality, and churn rates are down.

Mittal added: “I am pleased to see that market corrections have started with improvements in the quality of customer acquisitions, and that pricing stability is returning to the sector in India. With Africa over its peak of organic investments we are optimistic about the potential for improved market shares and margin expansions. Finally, on the data front, we are now witnessing consistent quarter on quarter growth across all geographies.”

Bharti Airtel’s African operations – largely acquired from Zain in 2010 – have yet to turn a profit. The company noted that “the operating metrics of our African business are a mixed bag”, adding that “growth in customer base by 10.6 million, traffic up by 29 per cent, voice minute usage per customer up from 124 minutes to 131 minutes and data accounted for 3.8 per cent of overall revenues, up from 2.9 per cent last year. However, due to the pricing pressures, voice realisation per minute fell from 5.16 cents to 4.06 [US] cents, and ARPU declined from $6.40 to $5.30.”

The group did increase its overall subscriber numbers for its entire 20-country operation over the previous year, with an 8% gain taking it to 271.2 million customers.

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