Why Did Bharti Airtel Rally 11 Despite the Rs 5237 Cr Q4 Loss in 2019?

Understanding the dynamics of the stock market can be quite intriguing, particularly when seemingly negative figures lead to significant rallies in stock prices. The case of Bharti Airtel in 2019 is a classic example of this phenomenon. Despite reporting a Q4 loss of Rs 5237 crore, the stock rallied by 11% shortly afterward. This article will delve into the reasons behind this unexpected market reaction and explore the factors that contributed to the rally.

Market Expectations and Reality

In the world of share markets, there's a tendency for the market to over or under-estimate the performance of companies. When Bharti Airtel reported a quarterly loss, the market might have expected a much larger adverse impact on the stock price, leading to a more significant drop. However, the actual loss was less than what was anticipated, which meant the stock price reacted positively.

It's important to note that the market tends to value where it sees potential for future growth, even if the current quarter has shown losses. The anticipation of better results in the upcoming quarters was a significant factor in the positive market reaction.

Roles of Market Expectations and Algorithmic Trading

The rally that Airtel experienced is also a result of the intrinsic value of its shares being revised based on future cash flows and expectations. This means that the market believed in the company's long-term prospects, even if the current quarter had shown a loss. Algorithmic trading machines, which operate on complex trading algorithms, further fuelled the rally by buying up shares based on these expected future performance improvements.

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Why the Rs 5237 Crore Loss? A Detailed Look

Beyond the market expectations, the reported loss of Rs 5237 crore for the Q4 of 2019 was essentially due to one-time spectrum charges of Rs 5642 crore. These charges, though high, were a one-time event and did not reflect the underlying health of the company. This expense is a typical financial item that can affect a company's reported earnings, but does not necessarily signify long-term financial weakness.

Positive Outcomes and Subsequent Growth

Despite the reported loss, numerous positive indicators from Bharti Airtel demonstrate a robust and growing business:

Subscriptions and Market Share: Airtel added 1.25 crores of 4G subscribers in the Mar '20 quarter, giving it more than 40% market share. This significant growth in subscribers is a strong indicator of the company's appeal to consumers. Revenue Per User (ARPU):** Airtel saw a growth in revenue per user (ARPU) by 25%, reaching Rs 154 per user. This is higher than Jio's ARPU of Rs 130, indicating Airtel's successful strategy of raising tariffs, which led many customers to upgrade their data and calling plans. Revenue Increase and Traffic Growth:** Total revenue increased by 15% to Rs 23723 crore, and data traffic grew by 74% year-on-year. This growth in data traffic is a sign of increasing user engagement, further validating the company's strategy.

Company Statement: According to Gopal Vittal, CEO of Bharti Airtel, the company is witnessing a 74% year-on-year growth in data traffic. This growth is due to higher subscriber numbers and increased user engagement.

Conclusion: The rally in Bharti Airtel's stock price can be seen as a result of a combination of positive market expectations, accurate financial reporting, and robust underlying business fundamentals. While the Q4 loss was significant, it was offset by a series of positive developments that suggested a bright outlook for the company.