Margin Compression and Profitability Sustainability: Evidence from EBDITA to Net Profit of Indian Telecom companies

Abstract

This paper investigates the phenomena of margin compression and the sustainability of profit margins on certain Indian telecommunication firms by exploring the trending patterns of profit margins from earnings before interest, tax, depreciation, and amortisation to net profit over the period 2015–2024. This paper takes into account the top five Indian telecommunication firms and uses only the secondary financial data available in the annual reports. Based on ratio, trend, and comparison analysis, this paper assesses the extent to which the operating profits get compressed over a period of time due to certain overheads like depreciation, interest, and other expenditures. This paper finds that although the operative margins expand heavily within the top Indian firms, there is a large margin compression at lower levels of profits, resulting in net losses accumulating for the majority of the firms researched. However, Bharti Airtel is the financially most resilient company amid the pandemic, indicating improvement in profitability trends, while the rest of the firms are under continuous financial distress.