India's top mobile phone carrier, Bharti Airtel, on Friday posted a bigger-than-expected 38 percent fall in fiscal second-quarter profit, hit by higher interest costs and losses on foreign exchange and in its African operations.

Bharti last year ventured into Africa by acquiring most of the African mobile operations of Kuwait's Zain in a $9 billion debt-funded deal, becoming the world's fifth-biggest mobile carrier by subscribers.

High costs in Africa have kept margins under pressure and Bharti has yet to turn a profit there, while a vicious price war in the ferociously competitive Indian market and costs related to its Indian 3G network have kept its margins subdued.

Bharti, nearly a third owned by Southeast Asia's biggest phone firm, Singapore Telecommunications, said consolidated net profit fell to 10.27 billion rupees ($210 million) for the quarter ended September from 16.61 billion rupees a year earlier, using international accounting standards.

Negative surprises were limited. On the domestic side, the drop in (profit) numbers and the fall in traffic quarter-on-quarter are roughly in line with a general industry trend, said Manish Sonthalia, a fund manager at Motilal Oswal Asset Management.

Shares in Bharti, worth $30.4 billion, traded up 0.8 percent in a Mumbai market that was up over 1 percent as of late morning.

Bharti said interest expenses in the quarter more than tripled from a year earlier to 11.18 billion rupees.

Currency fluctuations increased the cost of servicing foreign currency loans, leading to foreign exchange losses of 2.39 billion rupees for the quarter, versus profit of 2.49 billion rupees in the year-earlier quarter.

Most of the losses in Africa were due to forex fluctuations, Manoj Kohli, Bharti Airtel's CEO for international operations, told reporters. Bharti operates in 16 countries in Africa and generates revenue in multiple currencies.

However, Kohli remained optimistic for a turnaround in Africa, where Bharti has an internal goal to achieve $5 billion in revenue and $2 billion in operating profit by the fiscal year ending March 2013.

We are making good progress...We are actually more confident, he said.

The outlook for the Indian mobile sector has improved after carriers, including Bharti, raised some voice call prices in July by about a fifth, the first such increase in at least two years in the ferociously competitive market after a price war had sent call prices tumbling and squeezed profits.

Bharti and its rivals in the world's second-biggest mobile phone market of about 870 million users are also betting on a pick-up in premium third-generation (3G) mobile data services after they launched high-speed networks this year.

India's telecoms regulator on Thursday proposed new M&A guidelines which, if implemented by the government, would facilitate consolidation in the crowded 15-player market.

Bharti Airtel India and South Asia CEO Sanjay Kapoor said the company would not be averse to making acquisitions in India, although he declined to comment on specifics.

SEVENTH QUARTERLY PROFIT DROP

The decline in September-quarter profits was Bharti's seventh consecutive quarterly profit drop and was deeper than market expectations.

A Reuters poll of brokerages had expected net profit of 12.33 billion rupees on revenue of 172.58 billion rupees for the New Delhi-based firm, which had 227 million mobile users at the end of September in 19 countries in Asia and Africa.

Bharti said consolidated revenue rose to 172.76 billion rupees from 152.31 billion in the year-earlier quarter.

Monthly average revenue per user (ARPU), a key metric for telecom carriers, from Bharti's Indian operations fell an annual 9 percent to 183 rupees for the quarter, while Africa ARPU fell 1 percent to $7.3.

Margins at its Africa operations improved to 26.2 percent, from 23.2 percent a year ago.

Bharti had net debt of $13.2 billion at the end of September. The company plans to raise another $750 million to $1 billion through a dollar bond issue, but said it will wait until

market conditions improve.

The company had taken on debt to pay more than $3 billion for 3G and broadband spectrum in a state auction last year.

The company's stock is up 10 percent this year, outperforming a nearly 14 percent fall in the broader market. Smaller rival Idea Cellular's shares have jumped 41 percent this year, while closest rival Reliance Communications has lost nearly 42 percent on the year.

($1=49 Indian rupees)

(Writing by Prashant Mehra; Additional reporting by Henry Foy; Editing by Tony Munroe and Matt Driskill)

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