Telecom Sector’s Loss to profit: Bharti Airtel
Investing in loss-making companies can offer growth potential, as they may reinvest heavily to drive future profitability and present a valuation opportunity for value investors.
Early entry into these companies can lead to significant gains, especially if they become industry disruptors.
However, it comes with risks like uncertainty, volatility, potential dilution, and the need for thorough research. Diversification is essential, and investors should carefully assess their risk tolerance and conduct due diligence before considering such investments.
Important Consideration before investing into Loss to profit Companies
1. Understanding the Business Model
Thoroughly understand the company's business model and industry. Determine if the company's path to profitability is realistic and achievable.
2. Financial Statements
Analyze the company's financial statements, including income statements, balance sheets, and cash flow statements. Look for trends that indicate improvement in revenue, gross margins, and reduced losses.
3. Profitability Timeline
Assess the company's timeline and strategy for achieving profitability. Understand if there are clear milestones and a realistic timeframe for reaching profitability.
4. Management Team
Evaluate the management team's track record and their ability to execute the company's strategy. Strong leadership is crucial during a turnaround.
5. Competitive Environment
Consider the competitive landscape. Is the company in an industry with high barriers to entry, or does it face intense competition? A challenging competitive environment can make the path to profitability more difficult.
6. Debt and Liquidity
Examine the company's debt levels and liquidity position. High levels of debt can create financial strain and hinder the path to profitability.
7. Cash Burn Rate
Calculate the company's cash burn rate, which indicates how quickly it is using its available cash. Make sure the company has sufficient cash or access to funding to cover its operational needs until it becomes profitable.
8. Market Potential
Assess the size of the company's target market and its growth potential. A large and expanding market can support revenue growth.
9. Product or Service Viability
Evaluate the viability and uniqueness of the company's products or services. Are they meeting a genuine need or solving a problem in the market?
10. Regulatory and Legal Risks
Consider any regulatory or legal risks that could impact the company's ability to operate and become profitable.
Avoid putting all your investment capital into a single loss-to-profit company. Diversify your portfolio to spread risk.
12. Patience and Risk Tolerance
Understand that investing in turnaround companies can be volatile and may take time to yield returns. Assess your own risk tolerance and investment horizon.
13. Research and Due Diligence
Conduct thorough research, read company reports, and consider seeking advice from financial professionals. Understand the reasons behind the losses and the company's plan for recovery.
14. Exit Strategy
Have a clear exit strategy in mind. Determine under what conditions you would sell your investment, whether it's reaching a specific profit target or if the company's fundamentals deteriorate further.
In March 2019, the net profit of Bharti Airtel Ltd. was around ₹ -1,723 crore, then rose to ₹ -43,177 crore, then declined to ₹ -3,432 crore, respectively, every year. Then, in March 2023, the net profit will be around ₹ 16,561 crore.
The analysis over here is that the company turned around itself from a loss-making to a profit-making company from March 2019 to March 2023.
Overview of the Bharti Airtel Ltd
• Operational Highlights
1. Bharti Airtel (BAL) has solidified its position in the Indian telecom industry, boasting a wireless subscriber market share of 32.5% and a broadband subscriber market share of 29.1% as of April 2023.
2. BAL holds a robust revenue market share of 37.2% in 4QFY23.
3. The company's operational success is attributed to the growing proportion of high ARPU data customers, increased data usage, rising minutes of usage, and an industry-leading ARPU of INR 193 in 4QFY23. Additionally, BAL has expanded its spectrum footprint to offer 5G services, positioning itself for future growth.
• Financial Performance
1. In FY23, BAL demonstrated robust financial performance, with consolidated revenue surging by 19.4% year-on-year to INR 1,391 billion.
2. EBITDA margins improved to 51.2%, and absolute EBITDA reached INR 713 billion. This impressive growth was driven by factors such as an increasing proportion of high-ARPU data customers, revenue diversification across geographies and segments, and strategic pricing adjustments in its India mobility business.
3. The company's consistent revenue growth across its various business segments underscores its financial strength.
• Key Risks
1. While BAL's financial outlook appears strong, there are potential risks and concerns to consider. The Indian telecom industry is evolving rapidly, with increasing competition and technological advancements, such as the deployment of 5G services.
2. Regulatory changes, potential price wars, or unforeseen market shifts could impact the company's future performance.
3. Moreover, the debt incurred for 5G spectrum rights may pose liquidity challenges if not managed effectively, although BAL maintains comfortable credit metrics.
1. Despite potential challenges, BAL's outlook remains positive. The company's diversified revenue profile across geographies and segments, along with its focus on high-value customers and digital services, positions it well for sustained growth.
2. As 5G adoption continues and digital infrastructure investments bear fruit, BAL is poised to capitalize on emerging opportunities.
3. India's strong economic resilience and conducive government policies further support
DisclaimerInvestment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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