Increased focus on profitability good for Bharti Airtel: Pros

Bharti Airtel seems to be going the Idea way of making its business more profitable than voluminous says Prakash Diwan of prakashdiwan.in expressing his view on Bharti’s first quarter results.Bharti Airtel's first quarter earnings beat analysts' estimates on all counts with profit surging 10.8 percent sequentially to Rs 1,462 crore from Rs 1,319.5 crore.

It is notable that Bharti has not offered many discounts or new schemes on 4G during this quarter. So, growth is organic coming purely from new client acquisition and upgrade, Diwan says, adding, this will help them prepare well for tougher competition ahead.

Diwan also points to the systematic reduction in interest burden of Bharti which is making its business leaner and improving operational strength.

Naveen Kulkarni of PhillipCapital says the marginal improvement in voice realisations after continuous declines all of last year is encouraging.India Infoline is apprehensive about a similar show in the second quarter of FY17.In the second quarter, Bharti Airtel could see a deceleration in traffic growth, said Bhavesh Gandhi of IIFL. He said the brokerage has a target price of Rs 440 on the telecom operator's stock.Below is the verbatim transcript of Naveen Kulkarni and Prakash Diwan’s interview to Reema Tendulkar on CNBC-TV18.Q: Your initial reaction, limited numbers but how you are reading it?Diwan: Well, very clearly it seems Bharti is going the Idea’s way in terms of making its business more profitable rather than voluminous. From what I can read on the first cuts that they have also started focussing on efficiency and profitability which is more exactly what we saw missing last time, so they have kind of completed the cycle of such grow the volume, grow top line and then kind of start looking at making the business profitable. One of the things this has happened during this quarter which could have helped is that they have not offered any discounts, any new schemes on the 4G focus that they had, so it just been a fairly strong organic growth in terms of new client acquisitions and upgrades, so that’s what very clearly comes through and going forward this is something which will help them add to the war chest they have to built for the Rel Jio competition.Q: Bharti has already outperformed Idea by more than 35 percent since the start of the year. Bharti has seen a gain of close to about 9 percent in 2016 while Idea has declined by 25 percent, so there is already a significant outperformance in place. What happens to the stock from here on?Diwan: The trend will continue because Idea is yet to catch up because of the kind of scale that it misses out on. Bharti has focussed on building up capabilities and scale which are significantly larger than Idea. Have presence in almost all circles barring a couple of them means that they would start expanding much faster in terms of both new clients as well as ability to push pricing into the market with a well entrenched.So my sense is this outperformance is something that should continue. It is not something which will diminish unless Idea plays catch up at a faster accelerated pace, so right its Bharti which has continuously top dog.Q: A lot of numbers, but your initial reaction?Kulkarni: Numbers are seemingly good. Voice realisation I would say 33.49 paisa means it would be marginally better than last quarter of 33.2 paisa, so voice realisations have been declining for a while, so last whole year voice realisations have declined and this quarter voice realisations have been stable or moved up slightly, that is an encouraging sign.Overall, very strong performance on the margin front and earnings also I believe they would have beaten but of course we need to see whether the sale of Burkina Faso and profit on that is included in the numbers or not.Q: What about the India revenue growth, it just stands at 2.7 percent. Is that slightly lower than what you were anticipating and your thoughts on the volume growth at 2.2 percent.Kulkarni: See mobile services revenue it is very marginally lower than what we were expecting, so still they have added close to around Rs 400 odd crore in the mobile services business so that is still significant. Africa revenues are little lower, but that is kind of expected with the decline in the Naira, but overall I would say that on the revenue front also the performance is quite strong.