Bharti Airtel, India's second-largest wireless carrier, reported a quarterly profit that missed analyst expectations, as rising network costs and government license fees ate into gains from customers moving to pricier plans. The company's net profit for the quarter ended September 30 came in at 88.88 billion rupees, below the 96.73 billion rupees analysts had forecast, according to LSEG data.
Revenue growth remained strong, climbing 16.7% to 608.78 billion rupees, while average revenue per user (ARPU) rose 6% year-on-year to 271 rupees. The improvement in ARPU—a key metric for telecom companies—was driven by the addition of 18.8 million 4G and 5G users and a push to move subscribers away from cheaper prepaid plans toward higher-priced options.
But telecom growth is expensive. Airtel said network operating expenses rose 11%, license fees increased 13%, and total expenses climbed about 15% to 259.32 billion rupees. That cost creep squeezed profitability even as pricing improved, underscoring the challenge of balancing growth with margin protection.
Competitive landscape and cost pressures
Competition in India's telecom market remains intense. Reliance Jio continues to lead with 542.4 million users, compared with Airtel's 498.7 million. The two companies have been locked in a battle for subscribers, often using aggressive pricing to attract customers, which has kept a lid on industry-wide ARPU growth.
One bright spot in the quarter was Airtel Africa, which accounts for roughly a quarter of group revenue. Revenue there jumped 37.6%, providing a cushion against domestic headwinds. However, the overall cost structure remains a concern for investors, as network expansion and regulatory fees continue to rise.
The company's experience highlights the broader dynamics of the Indian telecom sector: adding users is one thing, but converting that growth into profit is another. With costs rising faster than revenue in some areas, the industry is increasingly looking to pricing power as the next lever.
What it means for investors
For investors, the key question is whether Airtel can translate its subscriber growth into meaningful profit expansion. The quarter showed that while ARPU is moving in the right direction, it may not be enough to offset rising costs.
That's why the next leg of earnings may depend less on adding users and more on pricing. There haven't been broad-based tariff hikes since July 2024, but brokerage Centrum expects an industry-wide increase of 12%-15% over the next four to five months. If that materializes, it could be a significant margin lever for Airtel.
The concept of operating leverage is central here. When a telecom company raises plan prices, a large portion of the extra revenue can flow straight to profit because the network infrastructure is already built. Subscriber “premiumization”—moving users to higher-tier plans—helps, but it upgrades the mix gradually. A broad tariff hike, by contrast, reprices the entire customer base at once, delivering a more immediate boost to margins.
The catch is cost creep. With network costs up 11% and total expenses up about 15% this quarter, investors are watching whether industry pricing moves soon enough to outpace higher operating costs and license fees. If it doesn't, ARPU gains like the 271 rupees reported could translate into less margin improvement than the market expects.
For context, other Indian companies have faced similar cost pressures. For instance, Glenmark's profit dropped as its North America sales slid, while Godfrey Phillips saw profits fall as India's cigarette tax bit into margins. These examples illustrate how rising costs and regulatory changes can weigh on earnings across sectors.
Looking ahead, all eyes will be on whether Airtel and its rivals follow through with tariff hikes. If they do, the sector could see a meaningful improvement in profitability. If not, the pressure on margins will likely persist, and investors may need to temper their expectations for earnings growth.
For everyday investors, this means watching not just subscriber numbers but also pricing decisions and cost trends. A tariff hike could be a positive catalyst for Airtel's stock, but it's not guaranteed. As always, it's important to consider the broader market context and the company's ability to manage costs while growing.
