airtel has come out with first quarter results. The company has posted consolidated growth of 11.75% in its first quarter net profit of Rs 1512 crore (Rs 15.12 billion) as against Rs 1,353 crore (Rs 13.53 billion) in the previous quarter.
David Nishball, President-Enterprise Services, said that growth has been significant with the increase in volumes. Though, he does see some competitive pressure. He said that margins fluctuated largely due to large projects undertaken and were impacted due to brand building exercise. Bharti is expanding capacity, which will kick in form Q2 and Q3 onwards.
Atul Bindal, President-Broadband and Telephone Services said the broadband business has seen a topline growth of 8% and bottomline, 22%. They are right now in the middle of a significant ramp up. They have seen the customer mix change grow profitability.
The management expects entry of international players to aid Bharti's enterprise business growth. Margins will be sustainable in corporate enterprise business.
The company was able to sustain the minutes of usage consistently on the network, which Sanjay Kapoor, President-Mobile Services cites as the reason behind the margin expansion.
Excerpts from CNBC-TV18's exclusive interview with David Nishball, Atul Bindal and Sanjay Kapoor:
Q: Perhaps you could update us on what has happened on voice and data in this quarter?
Nishball: In the enterprise segment, we have seen very good growth in terms of volumes on both the voice and data business, on both the domestic side as well as the international side. Overall, we quite healthy business and very strong demand from the corporate segment. More and more companies are entering India and Indian companies are expanding their presence to more of their branch offices and there is tremendous pressure on companies within India to upgrade their IT infrastructure. I think we are just seeing the beginning of a long-term trend of growth in the corporate segment.
Q: Between last quarter and this quarter, what kind of volume growth have you seen? More importantly, what are the comparable margins between the quarters for this business?
Nishball: I can’t give you an exact figure of the volume. The growth though is again significant mostly in terms of high degrees of bandwidth and increasing number of minutes' volumes. The bandwidth is offset by some pricing pressure in the market; we are still seeing a very competitive market within India. But as customers upgrade to higher and higher bandwidths, the net realisation per unit goes down even as the total revenue goes up. On a revenue basis, we are seeing roughly about 10% quarter-on-quarter growth and 30-40% growth on an annual basis in terms of total growth revenue from the corporate segment.
Q: And the margins?
Nishball: The margins fluctuated a bit primarily because of the large degree of major projects that we are undertaking. The major projects often take 2-4 quarters to implement; revenues may be recognised at slightly different timing than the operating expenses relative to those. We have also seen some pressure on margins just within this quarter. Primarily that is coming from a major brand-building exercise; so we are really trying to shout a little bit louder in the market about our capabilities in the enterprise segment. So, we have invested on the marketing side.
Also, because of the strong bandwidth volume increases, we have had to take a significant amount of short-term lease capacity to meet the total customer requirement. At the same time, we are making major investments in international infrastructure. We are buying full ownership of the i2i cable, which is a USD 110 million transaction that is imminent. We are expanding our capacity on SEA-ME-WE-4. But most of the capacity only becomes available to us on owned basis from the second and third quarter. So to bridge the gap for volumes we have had actually increase the number of 3-6 months leases to meet our customer requirement, which has put some pressure on our margins this quarter.
Q: How many broadband customers do you have now as the number moves close to a million?
Bindal: The number has moved up very sharply and you can find me beaming me this quarter because it is the question of strategy driving results with 8% topline growth and about 22% growth on the bottomline between quarters. We have actually expanded our margins and drive the revenues, which is where we set out the strategy. Finally we have been able to sustain ARPUs, which is absolutely unlike what is usually happening in other parts of the industry. We have a sharp focus, in the top twenty towns and the focus is on homes and small and mid-sized businesses and that is where the broadband first as a strategy is paying off. That number is moving very handsomely, we are in the midst of a significant network upgrade, which would make it possible for our customers to go upto 8 MBPS kind of customer experience solution on broadband and all that is paying very handsomely for us right now.
Q: What are ARPUs in the broadband business now?
Bindal: The ARPUs are like 1120 and that is where they have been for last three quarters running and that is where we are targeting to keep them going.
Q: How are margins between quarters?
Bindal: QoQ, we have expanded our margins by 22% on three counts. We have seen a revenue flow to happen at a much sharper extent as our strategy has begun to pay off under cost leadership side. Secondly, the customer mix has changed for us, so the customer mix now is actually far healthier in terms of profitability orientation as well as both broadband and SMB customers.
The third focus is in terms of the opex drives, which has come in the form of a top 20 towns focus; it has come in terms of the focus of the high rise on the verticals rather than horizontal areas. So all that has nicely helped us expand the margins in the business.
Q: What have mobility margins been like in this quarter? Have they been maintained?
Kapoor: Yes; we went up 11% on revenues and 15% on EBITDA. The margins are up by about 1.5% to 40.6%.
Q: And that is compared to what in the previous quarter?
Kapoor: It was 39-point something. I don’t have the right figures.
Q: What has driven margin expansion, because in some of the other businesses margins have dragged a bit this quarter?
Kapoor: Yes, I think we have been able to sustain our minutes of usage consistently on the network. Our number of customers have gone up. We are obviously knocking almost the two million mark and the number of customers we have added during the quarter has been very exciting, 5.7 million. And, I think it is a game where the rollout is helping us to expand into rural India now and we have rolled out more than 6,000 sites. I think we are covering more ground, adding more customers and the usage is being sustained.
Q: In terms of minutes of usage, last two quarters, 467 went to 475 and now you have gone to 478. Incrementally, it is a smaller step forward. Is it beginning to plateau a little bit, minutes of usage?
Kapoor: Very clearly when you go down to a lifetime customer at Rs 495, obviously his propensity to increase his minute usage in the same month is a little low. But we have seen that he bounces back very quickly. It takes a little longer than the normal customer, but in the subsequent months, he starts spending a little more extra money. So, we believe that in the subsequent months, you will see that bounce-back happening.
Q: Is that Rs 495 plan working?
Kapoor: Yes, it is working if you really look at the entire lifetime portfolio. In March, about 30% of our base was in lifetime and that has gone up to about 34%; one-third of the base lies there and it looks pretty exciting.
Q: How adventurous will you be with newer plans, with lower price points going forward or will you react to what some other competitors might do?
Kapoor: In the market there is quite an equilibrium. I think on pricing, there is no great advantage that one company enjoys over other. We have always provided competitiveness for our customers and the best value to all our customers in the marketplace; we will continue to do that. I think with what is happening in the market, the rates are already touching probably the lowest and we are the lowest in the world today. I don’t think there is much more room to go down further. But I think we will always remain competitive.
Q: You said that five quarters back. Since then things have changed quite significantly.
Kapoor: Yes. I think the rates have not gone down. I think it is some amount of packaging and some value-added products that have come into the marketplace.
Q: What is happening on IPTV, are you still sort of testing ground?
Bindal: We are progressing well, if you go back to where we were last quarter, everything has actually moved well, we are targeting a launch in Delhi before the end of this year, so before December, we would have launched IPTV in NCR. We would obviously start with the targeted launch and then extend it. It is back to the same point, we are actually talking about the non-standard ecosystem and it has been a mixed bag on IPTV results across the world, so we need to be very careful because it is going to be very branded and delivered to the customers as Airtel and that is where we want to just ensure that everything is absolutely in place. But I am glad to say that the last twelve weeks have been very fruitful, productive and absolutely on track as far as IPTV is concerned.
Q: You are not having second thoughts about it?
Bindal: None, what is driving ARPU sustenance for us is we are going in for dual play and triple play. So dual play has helped us keep the ARPUs at 1120 levels, we have gone in for flat combo plans, which today are voice and broadband plans and as we go forward, we want to make them voice-broadband and either IPTV or DTH as and when we will launch that.
Q: How competitive is the market now - the enterprise market?
Nishball: I think it is just the beginning of what I think will be one of the world’s most competitive markets. The attractiveness of this market is clear, because every major international carrier in the world is seeing the opportunity, particularly in the corporate segment to enter India and to serve their own corporates as well as to begin to support some of the Indian corporates as well.
We see the entry of the international carriers as an opportunity for Bharti. We will partner with many of the international carriers. If you look at the world’s five largest international carriers, three of them have decided to place most of their excess requirements with Bharti Airtel. We have a very strong infrastructure within this country - more than 600 parts across the nation. So I think any international carrier entering India is going to find it much better to partner with us and work with us rather than compete directly. So, over time they will find their value niche and we will find our value niche. But at the same time I am very confident about the entry of international players, which is going to raise the entire industry and it is going to raise the game. So, all of us are going to be pushed to offer higher value-added solutions and more complete services. None of these international carriers can compete with us on a pure infrastructure basis. None of them have the confidence and none of them are within two kilometres of all the customers like we are. None of them are going to have our cost basis on the infrastructure side. So they have to compete at the value level and that is going to be great for the entire industry.
Q: Do you think it will be tough to hold on to margins in this competitive scenario though?
Nishball: No, we see the margin is being very sustainable in the corporate sector. We will actually see some improvement in our margins as we implement a lot of our own infrastructure, particularly on the international side. So, on the international side we are migrating from what is today mostly half channel business to more full channel business and that will improve our margins. We are still riding on some short-term capacity leases, which are all being replaced by our own infrastructure. That is also going to help our margins. On the other side, what we are going to see is a change in product mix and so if there is a margin pressure or if there is a change in the average margins, it will be because of the change in product mix sold to corporate customers. Today, it is mostly in infrastructure products and most of that is supported by capital investment.
Over time as we move up the value chain we are going to see more and more total business solutions. It will include networks; will include equipment, third party services and all that will bring a higher level of OPEX and a lower level of capex into the mix. So, I think we will see two offsetting factors, improvement in the margins on the current services that we provide and a reduction in margins that come from a move into higher, more OPEX-related services than the infrastructure-related services.
Q: Give us a word on fixed lines; have margins dragged a bit in this quarter?
Bindal: No, not at all, actually margins have improved and we believe that with the broadband and fixed line combo play strategy, they would actually go even further. What we have done is through the sharp focus on small and mid sized businesses, we have actually started delivering one Airtel small and mid sized business services, which also includes now IT as well as network services combine together.That is what has resulted in shoring up of the margins and this customer mix has actually helped us expand the margin.
Q: Despite long distance rates cutting down?
Bindal: We have not started seeing any drag because of that particular thing and that is one of the advantages of offering customers a cafeteria of options because then you have the leeway of offering him a basket, which would still deliver the overall ARPU, which would make it possible for you to run the business at a sustainable level.
Q: Any disturbance in the market because of the Vodafone-Hutch Rs 99 plan?
Kapoor: Well, the Rs 99 plan has not taken up too well with the consumers. Out of the customers who use Rs 200 recharge voucher, about 9-10% have moved on to that. So, it has not really had too much attraction. I think really the market has been led by the lifetime plans over the last quarter.
Q: Do you see the potential for any other aggressive price plan that comes in and rattles up the market a bit from what we have seen in the last six months?
Kapoor: I think the market has been injected with a lot of customer-enabling price plans and I don’t see anybody in a hurry to lower down the market or take it any further lower to levels that don’t make sense.
Q: Not Vodafone with the big subsidy and handset subsidy plans?
Kapoor: Well that is speculation and I don’t want to comment on that. As per policy, we don’t believe in subsidising and discounting handsets. We have always provided handsets to our customers in the marketplace and we will continue to do that without subsidies. But I also believe that it is not necessary to have low-priced handsets to really proliferate the market. Specially in a market like India customers are very brand-conscious and feature-conscious; even in rural India. And foremost I think availability of after-sales service and support is extremely important to the customers, specially in a dusty environment like ours. Otherwise, brands like Nokia and Ericsson would not have the market shares that they have in the marketplace.
