This week Bharti Airtel posted its quarterly results for the current financial year and it wasn’t exactly a pleasant sight.

Profits declined 62% compared to the previous quarter and the average revenue per user (ARPU) has all but stagnated during this period. The only consolation perhaps is that the broadband business seems to be doing quite well and while it doesn’t seem like much, analysts across the board are still extremely optimistic about the company’s prospects.

So if you’re wondering why there are all these mixed signals coming in, then this week’s Finshots Markets is for you.


The Story

Let’s take it from the top. After the Supreme Court decided that the likes of Airtel had to settle massive dues in the AGR issue, things were looking pretty bleak for the company. They were asked to put up 43,000 crores in total, at a time when they were still struggling to eke out a profit.

But if that weren’t bad enough, they had to contend with Covid as well. The nationwide lockdown forced retailers to stop doling out new sim cards and it just seemed like this was going to be the end of the road for Airtel. However, things didn't quite pan out that way.

For starters, as soon as Airtel figured they’d have to muster sizeable sums in cash to settle government dues, they started setting aside money and taking massive hits on their bottom line. And they didn’t stop at that. They also began raising considerable sums of money from outside investors in a bid to strengthen their balance sheet.

They were future-proofing themselves.

Also, Covid’s impact on Airtel’s financials wasn’t nearly as bad as most people expected. Sure, there was a dip in new subscriber addition at first, but people were consuming massive amounts of data as they began working from home. To top it all off, new subscribers started showing up in droves as the government eased restrictions. Between July and September 2020, Airtel added 13.9 million subscribers and their revenues shot up18% when compared to the previous quarter.

Over the next 3 months, they did one better. They added 14.2 million subscribers, three times more than Jio — a rather extraordinary feat considering it was the first time they had ever surpassed the Mukesh Ambani-led enterprise. And as the financial year concluded, they had eked out profits in consecutive quarters and even reduced their losses during those 12 months — from 32,000 crores to about 15,000 crores.

So despite the poor results this quarter, the company’s overall financial health isn’t as bad as the numbers suggest.

Also, you have to remember that the impact of the second lockdown has had a veritable impact on Airtel’s subscriber base. They still host a sizeable chunk of users on their 2G network and since this group has been hard hit by the second wave, the company has been reluctant to increase tariffs across the board. In fact, if anything they’ve been doling out free recharge plans to keep them on the platform. And if it works out, maybe some of these customers will eventually transition to 4G.

So yeah, despite the fact that they’re making less money from each user right now, perhaps this strategy will bode well for them in the long run. Having said that, however, it doesn’t mean Airtel is out of the woods yet. Reliance Jio is still nipping at the company’s heels and Airtel’s financials aren’t exactly something to die for.

So why exactly are analysts still upbeat about the company’s prospects, you ask?

Well, perhaps it has little to do with Airtel, and more to do with the current state of the industry. Maybe they’re optimistic about Airtel because elsewhere, Vodafone-Idea (VI) is having a horrid time. According to most experts, VI is hanging on for dear life. They have massive payment obligations coming up next year and by all accounts, it’ll be a miracle if they can cough up the cash. If Vodafone Idea doesn’t manage to tide over this crisis, then the industry will be reduced to a de facto duopoly — Airtel and Reliance Jio.

And while there are those who believe that some entity will bail out Vodafone Idea, it’s still a stretch to imagine that the company can mount a significant challenge to the likes of Airtel and Jio in the near future, considering the duo boast far superior financial health.

So yeah, maybe people are expecting the likes of Airtel and Jio to gain from VI’s misfortunes and so even if the current results may not seem promising, you could definitely make a case for the future.

Until then…

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What is e-RUPI?

This week the government also introduced e-RUPI — a digital payment initiative that could revolutionize the public distribution system. So if you’re looking for a simple explainer to walk you through this whole thing, maybe you should check out our story from Monday.

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