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Bharti Airtel losses soar to Rs 23,045 crore, SC’s AGR verdict had ‘significant financial implications’

Bharti Airtel reported a net loss of Rs 23,045 crore in the quarter that ended on September 2019 — a massive increase from the Rs 2,866 crore net loss which it posted in Q1FY20. Airtel said that the Supreme Court’s recent verdict on AGR (Adjusted Gross Revenue) had “significant financial implications on the company”. Without the SC verdict, Airtel’s loss for Q2FY20 would have been Rs 1,123 crore. The net loss exceeded the company’s revenue, which grew 4.9% year on year to Rs 21,131 crore. Also, according to LiveMint, this is the company’s second quarterly loss in 14 years.

Airtel has provided for an additional amount aggregating Rs 28,450 crore as a charge for the September quarter (comprising of Principal of Rs 6,164 crore, interest of Rs 12,219 crore, penalty of Rs 3,760 crore, and interest on penalty of Rs. 6,307 crore) with respect to the license fee as estimated, based on the SC’s verdict and spectrum usage charges based on the definition of AGR. On the AGR verdict, Bharti Airtel’s MD and CEO, Gopal Vittal said, “We are hopeful that the government will take a considerate view in this matter given the fragile state of the industry”.

What was SC’s verdict on AGR? Last month, the apex court had ordered telecom companies to include non-core income for calculation of Adjusted Gross Revenue (AGR), and asked them to pay Rs 92,640 crores to the Centre, which includes disputed demand, interest, and penalty.

Following the judgement, the Cellular Operators Association of India (COAI) had written to the Department of Telecommunications, seeking its intervention, and argued that such payments would lead to a crisis at the companies and would cause distress to the sector as a whole. While Bharti Airtel and Vodafone Idea had backed COAI’s views in the letter, their rival Jio criticised it and said that Airtel and Vodafone’s financial difficulties were their own doing and an effect of their own commercial decisions.

Reducing customer base marked another worrying statistic for the company. In Q2FY19, the company had 351.5 million users across its different services. That number fell to 304.7 million users in Q2FY20, a 13.2% decrease.

  • Customer base for mobile services reduced by 16% YoY from 332.8 million in Q2FY19 to 279.4 million in Q2FY20. On the upside, the customer base increased by almost 1% between Q1FY20 (276.8 million) and Q2FY20.
  • Revenue from mobile services increased by 7.1% to Rs 10,981 crore as compared to Rs 10,252 crore in the corresponding quarter last year. The company said the revenue increased despite the mobile services and internet shutdown in Jammu and Kashmir.

Average revenue per (mobile) user (ARPU) in India fell down to Rs 128 this quarter as opposed to Rs 129 in the last quarter. On the brighter side, the company’s 4G customer base increased by 8.3% QoQ to 10.3 crores. Data usage per customer saw a 9.9% rise from 11,930 MB in the last quarter to 13,116 MB this quarter.

  • Total revenue from its mobile services increased marginally to Rs 10,811 crore from Rs 10,724 crore in the last quarter.

Airtel Payments Bank: Monthly active users increased to 9.8 million from 8.3 million in the previous quarter. However, losses increased to Rs 84.3 crore this quarter from Rs 75.5 crore in the previous quarter.

Fiber service expansion: Airtel incurred capital expenditure of Rs 102.3 crore as it expanded its fiber service Airtel Xstream, which offers broadband services and unlimited landline calls to any network in India.

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India’s dwindling telecom sector

The Department of Telecom, in a notification last month, made note of the following points regarding the financial performance of telecom service providers:

  • The aggregate gross revenue of the industry for the period between 2017-2018 and 2018-2019 has decreased.
  • The price of data for the customer at an average of Rs 8 per GB is the lowest in the world.
  • The average revenue per user (ARPU) per month has declined from Rs 174 in 2014-2015 to Rs 113 in 2018-2019.

DoT has also formed a Committee of Secretaries (CoS) headed by the Cabinet Secretary Rajiv Gauba, to examine challenges faced by the telecom sector and suggest measures to mitigate the financial stress in the sector.

In August 2019, Communications Minister Minister RS Prasad had urged Finance Minister, Nirmala Sitharaman, to reduce the GST on telecom equipment, “first to 12% and then lower, from the current 18%”.

  • Prasad noted that the adjusted gross revenue (AGR) of the telecom sector had shrunk by 25% to Rs 1.39 lakh crore in FY19 from Rs 1.85 lakh crore in FY17, and these measures were essential for the viability of the sector.
  • He also wrote that the Rs 36,000 crore that has accumulated as input tax credit due to the telecom companies be adjusted against future GST levies.

Download: Financials | Quarterly Report

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