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Jio races ahead as Airtel catches its breath.

Bharti Airtel Ltd reported decent earnings in a challenging quarter, thanks to strong growth in its India non-mobile business and Africa.

However, the key India mobile business was impacted by the disruption caused by the second covid-19 wave, hurting its subscriber growth. Its subscriber base remained flat at 321 million in the June quarter (Q1FY22).

This compares with the 14-15 million additions seen over the past three quarters. On a sequential basis, the churn rate increased to 2.8% from 2.2% in the previous quarter. Revenues of the India mobile business grew only 1.6% sequentially.

Airtel’s mobile revenue growth in the June quarter was below the estimated 3.3% growth for Jio, said analysts at IIFL Securities Ltd.

“This marks a change from Bharti’s outperformance versus Jio’s in recent quarters; this is not surprising, considering Jio’s higher subscriber addition in recent months after the introduction of the more attractive Jio Phone plan and Jio’s debottlenecking in hot-running sites post the recent spectrum acquisition,"

It said in a report on 4 August. It should be noted that Jio’s subscriber additions in Q1 were much higher at 14 million.

In a post-earnings conference call, the Airtel management said the covid-19 lockdown impacted smartphone shipments and delayed recharges. It also led to a consolidation of spends on SIM cards, especially in the lower end of the market. Another worry for analysts is the increase in net debt as cash flows came under pressure.

“Capex remained high at ₹6,590 crore, keeping free cash flow (FCF) post interest constrained at ₹1,710 crore. Over the last year, despite 30% Ebitda, FCF generation and deleveraging have been poor," said analysts at Motilal Oswal Financial Services Ltd. Net debt increased last quarter to ₹1.27 trillion versus ₹1.16 trillion in end-March.

The management is hopeful of a recovery in mobile revenues on the back of the latest tariff hikes. In July, Airtel upgraded its prepaid plans and discontinued its ₹49 entry-level prepaid recharge. Its prepaid packs now start from ₹79. It also raised postpaid tariffs for its corporate plans. But note that tariffs of flagship prepaid plans are untouched.

In Q1, Airtel’s average revenue per user (Arpu) increased sequentially from ₹145 to ₹146. It was ahead of analysts’ estimate of ₹141-142.

The company’s management expects Arpu to improve to ₹200, driven by further price hikes and eventually touch ₹300. While this sounds good in terms of vision, the ground reality is that market leader Jio is unwilling to play ball.

Meanwhile, Airtel is benefiting from the consolidation in the sector, with competitor Vodafone Idea Ltd struggling to survive.

This story has been published from a wire agency feed without modifications to the text - Wall Street Journal


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