Bharti Airtel Ltd.

(BSE: 532454 | NSE: BHARTIARTL | ISIN: INE397D01016)

CMP Rs. 838 (10/08/2007) 52 Week Highs Rs. 948.00 Lows Rs. 346.10 

Business Profile

Bharti Airtel established on July 07, 1995, as a Public Limited Company is the flagship company of Bharti Enterprises. The company was formed as a 80:20 joint venture between the Bharti Group through its subsidiary Bharti Telecom and STET International Netherlands NV, a company promoted by Telecom Italia, Italy.  The Bharti Group, has a diverse business portfolio. Bharti has recently forayed into retail business as Bharti Retail Pvt. Ltd. under a MoU with Wal-Mart for the cash & carry business. It has launched an international venture with EL Rothschild Group to export fresh agri products to markets in Europe and USA and has launched Bharti AXA Life Insurance Company Ltd under a joint venture with AXA, world leader in financial protection and wealth management.

Bharti Airtel is India's leading provider of telecommunications services based on an aggregate of 44,676,197 customers as on June 30, 2007, consisting of 42,703,938 GSM mobile and 1,972,259 broadband & telephone customers. The businesses at Bharti Airtel have been structured into three individual strategic business units (SBU’s) - mobile services, broadband & telephone services (B&T) & enterprise services. The mobile services group provides GSM mobile services across India in 23 telecom circles, while the B&T business group provides broadband & telephone services in 94 cities. The Enterprise services group has two sub-units - carriers (long distance services) and services to corporates. All these services are provided under the Airtel brand. Company is the largest integrated telecom player in India. It has invested more than USD 7.4 bn in the telecom sector and had annual revenue of USD 4.3 bn in the year 2006-07. The Company has a market capitalisation of USD 38 bn and is among the top 5 listed entities in India.

The Company compliments its mobile and broadband & telephone services with national and international long distance services. The Company has over 49,000 route kilometers of fibre on its national long distance network. For international connectivity to east, it has a submarine cable landing station at Chennai. For international connectivity to the west, the Company is a member of the South East Asia-Middle East-Western Europe – 4 (SEA-ME-WE-4) consortium along with 15 other global telecom operators.

The company has a strategic alliance with SingTel. The investment made by SingTel is one of the largest investments made in the world outside Singapore, in the company. The company’s mobile network equipment partners include Ericsson and Nokia. In the case of the broadband and telephone services and enterprise services (carriers), equipment suppliers include Siemens, Nortel, Corning, among others. The Company also has an information technology alliance with IBM for its group-wide information technology requirements and with Nortel for call center technology requirements. The call center operations for the mobile services have been outsourced to IBM Daksh, Hinduja TMT, Teletech & Mphasis.

The company was presented with many awards during 2006-07 like Best Indian Carrier Award in the Telecom Asia Awards 2006, Wireless Service Provider of the year and the competitive Service Provider of the year award in the Telecom Asia Awards 2006, Most Preferred Cellular Service Provider Award in the telecom category for the year 2006 at the Awaaz Consumer Awards 2006, MIS Asia II Excellence Award 2006 for Best Knowledge Management, Most Customer Responsive Telecom Company in India by the Avaya-Economic Times Global Connect Awards, Nasscom IT Innovation Award for the Business Model Innovation for the year 2006. The company's strategic outsourcing model has been studied and documented by Harvard Business School as a case study.

Recent Developments

Ranked third telecom company in world for giving best returns to shareholders.

Comparision with Hutch - Bharti gained 2.5% market share in 15 months and ahead with 12 million customers over Hutch.

Bharti Telemedia, a subsidiary of telecom giant Bharti Airtel, plans to launch the direct-to-home (DTH) (satellite TV broadcast) services by the fourth quarter of FY 2007-08. The company has received the letter of intent (LoI) for commencing its DTH services from the union ministry of information & broadcasting. The DTH services will be launched nationally by the company. Towards this, the company is setting up state-of-art infrastructure near Gurgaon (Haryana) for the purpose of up-linking and broadcast.

One of Bharti Airtel’s group Companies has acquired a 4.99% direct interest in Bharti Airtel Ltd from Vodafone. With this, Bharti has enhanced its voting interest in Bharti Airtel Ltd., to over 50%.

Company has awarded Ericsson an estimated USD 2 billion expansion contract, including expansion of its GSM/EDGE network and providing capacity management. The deal will allow the Company to expand its reach into rural areas thereby further consolidating its leadership position. This is one of Ericsson's largest deals to date. Under the two-year supply and services contract, Ericsson will design, plan, deploy, optimize and manage the Company's GSM network across 15 circles in India as well as for its pan-India prepaid (IN) platform across 23 circles. In addition, Ericsson will also deliver pan-India Integrated Device Management Solutions, enabling usage of advanced data services by all mobile customers across retail and enterprise segments. The core network is based on Ericsson's layered architecture philosophy that will pave the way to an all-IP environment, and includes a common 2G/3G core based on Mobile Softswitch; a Mobile Packet Backbone Network (Mobile PBN) for data services; and a pan-India pre-paid platform using IN (Intelligent Network) technology to deliver pre-paid services to users. It will allow Bharti to charge differentially for both voice and data. Ericsson has been a strategic partner of Bharti Airtel since 1995, and manages around 70 percent of its GSM/EDGE network in 15 circles in India. Ericsson's nationwide charging solution (IN) caters to Airtel customers across all the 23 circles of the Company.       

Bharti Airtel & Nokia Siemens Networks on July 03, 2007 signed a Memorandum of Understanding for a USD 900 Mn. (approx.) expansion contract across Airtel's mobile, fixed and Intelligent Network platforms. Nokia Siemens Networks will expand Airtel's GSM network in eight circles; its National Long Distance and International Long Distance network with 1.8 million Next Generation Network (NGN) ports - the largest ever NGN contract in the country - and its International Calling Card prepaid service capacity by 4.5 million news users. The GSM and NGN expansions are planned over two years and the International calling cards expansion over three years. The two year GSM expansion will cover the eight existing circles of Mumbai, Maharashtra & Goa, Gujarat, Madhya Pradesh & Chattisgarh, Bihar & Jharkhand, Orissa, Kolkata and West Bengal where Nokia Siemens Networks already provides equipment and Managed Services. The expansion will enable Airtel to expand its geographical footprint to rural India and increase its overall network capacity. The contract includes network planning, implementation and project management, handling of local logistics and materials as well as system integration for the base station sites. Nokia Siemens Networks has one of the world's largest services networks with more than 20,000 dedicated professionals. The network will be continued to be supported by the multitechnology, multivendor NetAct(TM) network and service management system. The three year International Calling Cards services expansion will see Airtel more than quadruple its capacity and address its calling card business expansion to tap more international markets. The calling card prepaid service will be supported by Nokia Siemens Networks' flexible IN@vantage platform for intelligent services. It also allows Bharti to increase network traffic and related revenues by addressing specific market segments and user expectations with dedicated communication solutions. Both Nokia and Siemens have been associated with building Airtel's mobile and fixed networks. The previous major deal for GSM expansion that was signed last year between Nokia and Bharti was valued at $ 400m.           

Bharti Airtel Ltd on May 23, 2007 has announced that the Company has crossed the 40 million-mobile customer milestone. With this, the Company becomes the first Indian mobile services provider and the 10th in the world to join an exclusive list of global telecom operators with more than 40 million customers from a single-country. This landmark customer base was achieved in just 12 years, making the Company one of the fastest companies to make it to this exclusive list. It took the Company 11 years to reach the 20 million customer landmark and just another 13 months to add the next 20 million customers. The Company's overall wireless market share catapulted to over 23.2% as of April 2007 from 20.4% as reported in FY06. The Company's lead over Hutch has widened from 2 million in March 2006 to over 11 million in April 2007. Similarly, the Company’s lead over Idea Cellular and Bharat Sanchar Nigam Ltd. has increased from 11 million to 24 million and from 0.5 million to 8 million, respectively. More significantly, the Company’s swing over Reliance Communications has increased by 10.7 million customers - from a deficit of 1.7 million to a lead of 9 million. Currently, the Company is present in nearly 4,700 census towns and over 200,000 non-census towns and villages covering 59% of the country's population. The Company plans to roll out more than 30,000 cell sites in FY08 to increase its population coverage to 70%.

Company in May 2007 has introduced its popular Lifetime Prepaid at a lower price point of Rs 495/- only. The Company is the first mobile services provider in the country to offer Lifetime Prepaid at this price point. Under the new Lifetime Prepaid, the customer can stay mobile by paying just Rs 495 and using a minimum of Rs 200 every 180 days to continue enjoying lifetime validity benefits. With effect from May 18, 2007, Lifetime Prepaid 495 is available to all existing as well as new Company mobile users. In April , 2007, It has announced the reduction in International Long Distance Tariffs (ISD) for all its mobile customers in India. Airtel mobile customers can call USA, Canada, Australia and many other countries for as low Rs 6.40 per minute - a reduction of 11% from the earlier rates. With this, Airtel has made ISD calling from mobile more economical than making ISD calls from Fixed / Landline phones. Further in March, 2007, Airtel has reduced the fixed monthly rental for BlackBerry from Rs 1099/- per month to Rs 249 per month. In this new plan apart from the fixed monthly rental, Airtel BlackBerry users will be charged Rs 0.15/- per Kb of usage. Since BlackBerry utilizes a high level of data compression the average monthly bill is expected to significantly reduce by 40% to 45%. Airtel BlackBerry users who have a greater data requirement have the option of continuing with the old plan wherein they will be charged a fixed monthly rental of Rs 1099/- per month for unlimited usage. Airtel has also brought down the price of the popular BlackBerry 7100g handset to Rs 10,999/-.

Bharti is supporting the Saudi led consortium for Saudi Arabia Licence with a minority stake of 15% as stipulated by Communications and Information Technology Commission (CITC), The principal role of Bharti Airtel will be to provide comprehensive management services including negotiation with vendors, roll out of networks, brand building and distribution, setting up management processes and providing training and development under management services Agreement for which Bharti Airtel will get a management fee in addition to reimbursement of all actual costs.     

Bharti Airtel & Vodafone have entered into a Memorandum of Understanding (MoU) on a range of significant areas including infrastructure sharing, roaming and long distance services. The Company will be preferred vendor of Vodafone for NLD, ILD and leased line services. Vodafone will also give 50% of its in-bound international roaming traffic to the Company for three years. The two companies will also work on a comprehensive range of significant infrastructure sharing options including around 70,000 towers in India, enabling rapid network expansion to connect sub urban and rural areas across India.

Bharti Airtel has received a Letter of Offer from Telecommunications Regulatory Commission of Sri Lanka to provide 2G and 3G mobile services in Sri Lanka. This will be the first international operation of the Company and is in line with the Company's plans to expand its telecom operations in the South Asian region. Bharti Global, a subsidiary of Bharti Enterprises, has been operating comprehensive telecom services in Seychelles under the Airtel brand since 1998 and recently launched 3G services in the country. Bharti Global has also been awarded licenses to operate 2G and 3G services in Jersey and Guernsey in Europe

Bharti Airtel Ltd on December 07, 2006 has announced its foray into the United States of America with the launch of Airtel CallHome service for Non Resident Indians based there. It will benefit over 2.5 million NRIs based in the United States of America. They will now be able to call their loved ones back in India at rates as low as 7.9 cents a minute. All they need to do is go to the Airtel website, create their personal account and download the calling service online. Airtel 'CallHome' service is accessible any time of the day or night, as per the convenience of the customer. Compared to the other options available in the market, this service comes at a significant 40% less in terms of pricing. A big advantage of this service is that it offers uniform rate of calling whether it is to any Airtel mobile or Landline or any other mobile phone or landline. Available initially on pre-paid option, the payments for pre-paid recharges will be accepted through the credit card on web portal through a secure payment gateway. Airtel also offers it's customers the freedom to choose their mode of managing their personal accounts either through the internet, Airtel Call Center or through a local toll-free access number that can be accessed across the continent from any phone.

Bharti Airtel and Google announced a strategic partnership. As part of the agreement, Airtel will bring Google search to the Airtel Live mobile WAP portal. Google will also incorporate advertising through its Mobile Ads product on the Airtel Live mobile portal. This will enable advertisers to reach targeted users with their products and services on a cost-per-click basis. The Google search engine on Airtel Live mobile portal will enable Airtel users to use the Google search engine to easily access content. Google will power searches on Airtel Live in two areas - on net (rich content on Airtel Live) and off net (Internet on Mobile). Airtel Live has over 50,000 pieces of content including information like news, stock ticker and sports scores and downloadable content like games, music, video clips and wall papers. This new business model is a first for both consumers and businesses in India.

Microsoft and Bharti Airtel announced a strategic partnership that will offer a range of software and services for small and medium businesses (SMBs) in India. The partnership will begin by offering to Indian SMBs Microsoft Solutions for Hosted Messaging and Collaboration. It will also offer other hosted applications like CRM, Accounting, ERP, Unified Communications and select Microsoft ISV applications. In unique software cum service solution model, Airtel is working in close co-operation with Microsoft to provide enterprise-class software bundled with connectivity solutions to small businesses that do not have dedicated IT resources. This service is predominantly aimed at Companies with five or more employees. These Companies will now be able to enjoy the same experience as large enterprise customers without initial investments using a pay-as-you-go model. This new professional messaging and collaboration service will give small businesses the ability to access secure enterprise grade e-mail, secure instant messaging and intranet portals, whether they are in the office or on the road. This follows the strategic partnership between Airtel and Microsoft that enables Airtel customers to access corporate email via direct push technology using Microsoft's Windows Mobile ® 5.0 platform. Managed entirely by Airtel, these services will allow businesses to communicate more efficiently, reduce administrative and IT overheads and connect employees with business-critical information whenever and wherever they need it.

Bharti Airtel entered into alliance with Adani Group to connect Mundra Port and Special Economic Zone. This is a first-of-its-kind alliance with the Adani group for setting up the Telecommunications Network Infrastructure for its multi-sector Special Economic Zone (SEZ) located at Mundra port.

Bharti Airtel entered into alliance with IBM to deliver India’s first ‘Service Delivery Platform’ (SDP). This platform will enable Airtel to deliver a suite of unique, innovative products, services and applications, to its over 40 million customers spanning mobile, landline and broadband services. Airtel is investing over USD 100 Million in this delivery platform.

Bharti Airtel and the GSM Association launched the Global money transfer pilot project in India. This initiative will eventually enable over 25 million Indians abroad to remit money to India through their mobile phones. For enabling this, Bharti Airtel and State Bank of India have created private/public partnership to serve Indians at home and abroad.

Financial Performance

Bharti Airtel Ltd has announced the following results for the quarter ended June 30, 2007: The Consolidated results as per United States Generally Accepted Accounting Principles (US GAAP) are as follows: The Group has posted a net income of US$ 371.08 million for the quarter ended June 30, 2007 as compared to US$ 162.67 million for the quarter ended June 30, 2006. Total Revenues has increased from US$ 830.80 million for the quarter ended June 30, 2006 to US$ 1449.52 million for the quarter ended June 30, 2007. Capex for first quarter was Rs 37 billion, which is inline with full year capex of  USD 3.3-3.5 billion. For FY09, the capex will be more or less on similar lines of FY08 but excluding tower business' expenditures. Return on equity increased from 29.6% to 40% and Return on capital employed from 24% to 29.3%

The Audited Consolidated results as per United States Generally Accepted Accounting Principles (US GAAP) for the year ended March 31, 2007. The Group has posted a net income of US$ 979.97 million for the year ended March 31, 2007 as compared to US$ 505.75 million for the year ended March 31, 2006. Total Revenues has increased from US$ 2604.55 million for the year ended March 31, 2006 to US$ 4263.09 million for the year ended March 31, 2007.

Economic trends and its impact

In India rapid economic growth has been accompanied by an exponential growth in the telecom sector. The Indian telecommunication industry is amongst the fastest growing telecom markets in the world and is poised to deliver robust growth as a result of several economic reforms that have lead to strong GDP growth pegged at approximately 9.2% for FY 2007. Higher per capita income and appetite for increased consumption is resulting in a greater-than-proportionate impetus for telecom growth. As India still remains a largely under-penetrated market with over a billion people, it is one of the most attractive telecom markets in the world today. Teledensity in India is 20% of total population, which is much lower than other countries. India has reached a wireless penetration of 14.7% in FY 2007 registering an annual growth of 68%. With increased coverage and affordability due to rising income levels this growth is expected to continue in the medium term. Further India’s 42% of the population is less than 20 years in age. Bharti Airtel will benefit from the overall economic growth and the potential for further growth of telecom services in the Indian market as they are the first and only private mobile GSM operator to have an all India footprint. Bharti would continue to report robust net additions as it moves into smaller cities and towns coupled with an aggressive push on micro pre-paids where effective realization is higher.

The telecom industry is one of the most dynamic industries in India today and is characterized by a constantly evolving regulatory environment. The direction and pace of regulatory changes implemented by the DoT/ TRAI is positive for the Telecom Industry in light of the challenges and opportunities that the industry is facing today. On November 27, 2006, TRAI issued a regulation mandating all service providers to provide interconnection to all eligible service providers so that subscribers of all access providers can access the IN services offered by other service providers. Service providers are required to enter into reciprocal and non-discriminatory agreements for technical and commercial aspects of such connectivity within three months. In April 2007, TRAI made recommendations to DoT to incentivise infrastructure sharing, especially in rural areas, through amendment in licenses and Universal Service Obligation (USO) subsidy. The idea is to enable sharing of antenna, backhaul facilities between operators who are not beneficiaries of the USO scheme for which bidding was recently concluded. Further Government of India has announced enhancement of FDI ceiling from 49% to 74% in the telecom sector, subject to certain preconditions.

There exists a tremendous potential for direct to home broadcast (DTH) in the Indian market. The low levels of reach, quality and service standards of existing cables, coupled with growing demand for digital content and introduction of conditional access system ( CAS) by the Government of India will help DTH grow manifold in the next few years. Bharti Telemedia, the subsidiary of Bharti Airtel Limited has received the letter of intent (LoI) for commencing its DTH services from the union ministry of information & broadcasting and the DTH services are expected to be launched in the course of the financial year.

Sri Lanka will be the first international operation of Bharti Airtel and is in line with the Company’s plan to expand its telecom operations internationally in select markets. Bharti Airtel received a letter of offer, from the Telecom Regulatory Commission of Sri Lanka to offer 2G and 3G services in Sri Lanka.

Singtel continues to be an investor and a strategic alliance partner of Bharti Airtel and they expect to leverage the strengths and experience of Singtel in years to come. Vodafone has won a bid for acquiring the majority stake in Hutchison Essar, subject to obtaining requisite government clearances. The Company has entered into a MoU with Vodafone that sets out the intention of the parties with regard to sharing of telecom, infrastructure, provisioning of domestic/long distance services and leased line services by the Company to Hutchison Essar and grant of a preferred status to the Company for international roaming traffic of Vodafone group companies.

Bharti Airtel’s Tower business is its 100% subsidiary. It has filed documents with Delhi court for demerger. Currently it has 40000 telecom towers and will reach to 65000 towers by March FY08. This demerger will unlock the value for its shareholders.

Risks And Concerns

Increased competition is likely to put greater pressure on service charges and may reduce market share and/or revenue. For National Long Distance (NLD) segment and International Long Distance (ILD) segment, licenses to provide these services have been allotted to a number of new players. These new entrants are likely to penetrate into the market using aggressive pricing as an entry strategy. Thus revenues from these services may come under pressure. Further TRAI has initiated industry level discussion on the implementation of Carrier Access Code (“CAC”) which enables subscribers to choose their long distance service provider but currently there is no visibility on the likely date of its implementation. Currently subscribers do not have the ability to choose their long distance service provider and have to route their long distance calls through the NLD and ILD network with whom the service provider has an interconnect agreement. With the implementation of CAC, the competition in NLD and ILD segments is expected to increase as even long distance operators, with no last mile access, will be able to offer their carrier network to the end users. Mobile Number Portability (“MNP”), which allows subscribers to switch their wireless service provider while retaining their number, is also expected to increase the competition.

Telecom business is subject to extensive regulation by the Government, which could have an adverse effect on business. Any changes in tariff structures for services by any government mandated or other may adversely affect the Company’s performance.

Bharti compete with government-owned or government controlled companies and it may seem that the regulatory environment may tend to benefit them over the private operators.

Technical failures and natural disasters could damage telecommunication networks. The network operation may be vulnerable to damage or interruptions due to adverse weather conditions, earthquakes, fires, floods, power loss, telecommunications failures, software flaws, transmission cable cuts or similar events and natural disasters.

Changes in available technology could increase competition, their capital costs and render the Company’s technologies, products or services obsolete. The telecommunication services industry is characterized by rapid technological change and significant capital requirements.

The growth of the Indian economy has led to an increased requirement for talented managerial personnel. Retention of employees is a major task.

Steps taken by Company to mitigate risk

Bharti maintain insurance for its assets, equal to the replacement value of its existing telecommunications network which provides cover for damage caused by fire, special perils, and terrorist attacks.

Bharti have implemented back-up solutions in the event Technical failures, which they believe will enable them to continue with normal operations under most circumstances.

In order to remain competitive, Bharti consistently introduce new sophisticated technologies. They deployed new technologies after assessing the experience of their international partners have had in the deployment processes before choosing to do so themselves.

As a retention strategy, the Company has issued ESOPs. Further, in order to mitigate the risk Company place considerable emphasis on development of leadership skills and on building employee motivation.