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(Interview Transcript)
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Telecom major Bharti Airtel has come out with its quarterly results. And, the company posted consolidated growth of 11.75% in its first quarter net profit of Rs 1512 crore, as against Rs 1,353 crore in the previous quarter.
Revenue increased by 9.56% to Rs 5909 crore (Rs 59.09 billion) versus Rs 5,393.2 crore in earlier quarter. EBITDA margin stood at 41.4%.
The management said that it would be unrealistic to expect a continuous rise in margins. They expect farily stable margins, going forward and do not expect margins to rise much from here.
President & CEO, Manoj Kohli said that the business model is not ARPU dependant. Minutes of Usage (MoU) grew by 3% and broadband MoU also increased significantly. He sees pent up demand in smaller towns and cities.
They said that Bharti is focusing on market leading growth and will continue to add subscribers robustly. The management doesn't see any slowdown in subscriber additions in metros. And are headed to two million subscribers monthly additions in the coming months.
Excerpts from an exclusive interview with Manoj Kohli and Akhil Gupta:
Q: Margins lost 10 bps over last quarter, any particular reason? Are margins beginning to top off after the phenomenal growth of the last four quarters?
Gupta: I think it's wrong to always give margins on QoQ basis. On a yearly basis, there is a massive increase in the margins. But I have always said these margins are pretty good and it will be unrealistic to expect a continuous increase in the margins. But to answer your question, I do not think it’s going to be eroding, but I do not expect them to rise higher.
Q: It’s been just 10 bps in this quarter, do you expect some more slackening closer to 41%?
Gupta: I think this is a fairly stable margin that one would look for.
Q: ARPUs have come off to about 390, but do you see ARPU settling down at even lower levels from here?
Kohli: I believe our business model is not ARPU dependent and hence we look at ER (effective rate) per minute, we look at margin per minute and that is the factory we are running. We are running a factory of minutes, and running it quite efficiently. Fortunately, over a 45 million base, we are able to grow the MoUs by 3 minutes in a quarter, which actually is quite gratifying. On the other hand, in broadband, our ARPUs have grown despite adding another 100,000 broadband customers.
Q: Where do you see minutes of usage going from here? From this level of 478, do you think you can improve it?
Kohli: I see a pent up demand in smaller towns, villages etc. We have launched a 495 modified lifetime scheme this quarter, which has done well. Maybe the outgoing rate to some customers may be slightly higher. I believe as we improve our schemes further, you will see MOUs growing further.
Q: It’s 478, right for this quarter?
Kohli: Yes, 478. I also believe that for rural and small town customers, maybe the gestation period of picking up MoUs are slightly higher than the metro customers. So there is a pent up demand and MOUs will surely grow.
Q: Where does the margin plateauing come from, is it from wireless or Infotel? Infotel has dragged a bit?
Gupta: In fact, on mobile, there is absolutely no slackening. On the non-mobile business, it is a bit because of the passing on of the ADC cuts. There is a little bit of slackening on that side. But on the mobile, it has been absolutely fine.
Q: What is the revenue per minute picture? Has that softened a bit between last quarter and this quarter?
Gupta: A little bit, yes. Because we have now - 390, I think, is the ARPU and 478, versus some 406 and 475 – so a little bit of lowering on that. Part of it was also because of a change in the way we recognise the upfront payment on the lifetime products.
So it is over the life of the customer and because of the lower churn over the year - we are now recognising it over 24 months; we used to recognise it over 18 months. There is a Rs 70 crore revenue, which has come down because of that. So if you do that, there is a little bit. But not anything significant.
Q: RPUs at 0.81, do you see it stabilising or settling sub 0.8 or holding these kind of levels?
Kohli: As the competitive intensity grows, there will be some erosion. But I think, overall the customers are looking at our product, it has reached to affordable levels. I go around small towns and villages, customers don't tell me that it is higher than their affordability limit. At the same time, I believe that we as a leader brand, we are able to command some premium in the market, so erosions will be there but nothing major.
Q: Do you see price points coming down further, the Vodafone-Hutch Rs 99 plan, has it sort of shaken up the market a bit?
Gupta: No, I don’t think that’s got to do with the price points, because the prices in that are actually higher. But we would love to see the realised rate coming down and a lot of that will have to do with the regulations.
It has been a long-standing demand of the market and the industry that the taxes which are there on this industry, need to rationalise and come down. And there is a very clear promise by every player that we will straight away pass it on to the customer. So if it is happening, I think it is most welcome. I do see some rationalisation taking place and price points too would come down.
Q: Would minutes of usage compensate for that because where minutes of usage between quarters have gone up, they have gone up less than what the Street was expecting. Is there any kind of deceleration there happening?
Gupta: Not really. I won’t say there is a deceleration. If you look at the whole construct that we are following, we are trying to reach out to a much wider base now. And that’s why, lifetime plans are at Rs 495 instead of what they used to be, Rs 999.
Now we are trying to get customers having an even lower level economic standing into our networks. Therefore, as they come in, initially there is less usage, they are a little more apprehensive, they are using it for the first time. And our experience has been that as they start using it, it starts going up. So we are actually happy that this net is being cast wider.
Kohli: I am sure about it, I believe the customers in smaller towns and villages haven’t tested dailtone or any fixed line unlike metro customers. So they will definitely use it more. Mr. Akhil is right, maybe there is initial hesitation, which will get over in 2-3 months and they will start using well, not only voice SMS, but products like ringback tone etc also.
Q: You've had a great quarter on subscriber additions per month. Do you see the acceleration continuing or is it just because BSNL is absent from the market, which is a bonanza in this quarter?
Kohli: No, I think it has been a great start in a new year for us, the market has grown well for the first time. We have done about 5.7 million customers in the quarter, market is growing. Any one competitor not growing well is not an issue, because I think it is a very competitive market. We stick to our market growth strategy, we lead the market growth and I believe that customer addition should continue to grow very robustly.
Q: Would you concede that BSNL has been a factor because May-June their performance has been abysmal?
Gupta: It is wrong for me to comment, but it’s a competition and I am confident that irrespective of how BSNL comes back or others come back, the task which we have of capturing a large chunk of the market share; which we have been doing successfully, our operating team will absolutely continue to do that and that’s also a test.
Q: Can you get up to that 2 million a month because you are nudging very closely?
Gupta: We are at 1.96, so not too far off.
Q: Is it headed there you think?
Gupta: I definitely think so.
Kohli: We do not see any let up. I think metro markets like Delhi, Mumbai, Chennai, Bangalore are keeping pace, I think we are seeing good growth here. B category circles are doing well, C category circles are doing much better, so I think acceleration should continue.
Q: Idea is getting into a newer circles, you have got Spice also in a few markets, do you think that when newer players enter new circles, there will be some kind of erosion away from market shares?
Kohli: We are not worried at all, we are as a company, child of competition, so we are used to this. Since we started the seven-eight player intensity in the metro cities, we are coping well, we are winning every day. So I believe that competition will further grow in the market and you will see that positive trend coming in as other operators come in to the new towns.
Continued on next page...
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