* Net profit 14 bln rupees vs 16.32 bln market forecast
* Net sales 162.65 bln rupees vs 163.28 bln market forecast
* Africa-related loss 4.2 bln rupees in qtr, sees better margins
* Shares fall more than 4 percent after quarterly earnings (Adds more comments from management, details of results)
By Devidutta Tripathy
NEW DELHI, May 5 (Reuters) - The loss-making African operation of Bharti Airtel Ltd is expected to dent near-term earnings of India's biggest mobile operator, which posted a bigger-than-expected 31.5 percent net profit drop in the March quarter.
Bharti's prospects in its main market in India, the world's second-biggest and fastest-growing by mobile customers, have improved after call prices steadied last year following a vicious price war that led to sharp drops.
Companies including Bharti have recently started rolling out third-generation (3G) networks and are eyeing a pickup in premium data services to boost margins after they spent a total $15 billion at auctions last year to buy costly radio spectrum.
But Africa continues to weigh on Bharti's earnings. It acquired the loss-making mobile operations of Kuwait's Zain in 15 countries last June in a $9 billion deal and became the world's fifth-biggest mobile carrier by subscribers.
"In the short-term, Bharti's earnings will continue to be weighed down by losses in African operations as well as interest payments on loans it had taken," said K.K. Mital, head of portfolio management at Globe Capital.
"An improvement in the company's African operations will be key for its earnings prospects."
The company said Africa-related overall loss was at 4.16 billion rupees in the March quarter.
Bharti expects to grow margins in Africa by bringing costs down but is still facing high cost structure in the region, Manoj Kohli, Bharti Airtel's CEO for international operations, told a news conference.
Bharti has outsourced its networks and IT operations in Africa to bring down costs. It has also cut call prices in several African markets to boost usage, mirroring its low-cost, high-volume model from India that emphasises generating high network usage, or building a so-called "minutes factory".
"Quarter on quarter you'll see a positive impact of that business model on Africa margins," Kohli said. "Overall I can say that I can see the first signs of per-minute costs going down in Africa. And in the next 4-6 quarters, you will see our per-minute costs going down."
Akhil Gupta, deputy CEO at the mobile operator's parent Bharti Enterprises, said revenue growth in Africa had been strong since it took over the operation last June, but there were some "big structural defects" in the African telecoms industry that were leading to "a very high cost" of doing business.
It was the fourth consecutive quarter of falling profits for Bharti, since it started reporting results based on international accounting standards.
Shares in Bharti, valued at about $32 billion, fell as much as 4.7 percent after the earnings to 352.20 rupees. They recouped some of the losses and were trading 2.4 percent down at 0809 GMT in a weak Mumbai market .
PROFIT DISAPPOINTS
Bharti, 32.3-percent owned by Southeast Asia's biggest phone firm SingTel , said consolidated net profit fell to 14 billion rupees ($314 million) for its fiscal fourth quarter ended March from 20.44 billion a year earlier.
Net sales in the quarter rose to 162.65 billion rupees from 107.49 billion.
A Reuters poll of 10 brokerages had on average expected net profit of 16.32 billion rupees on revenue of 163.28 billion rupees for the New Delhi-based firm that now operates in 19 countries across Asia and Africa with 212 million mobile customers at end-March.
The profit was also weighed down by interest expenses of 6.8 billion rupees for the March quarter, compared with a net interest income of 356 million rupees in the year-ago quarter.
Sales and marketing expenses more than doubled after launch of 3G networks. Tax outgo for the quarter was about 46 percent higher on year as tax rates jumped.
Bharti's monthly average revenue per user (ARPU), a key profitability gauge, in the fiercely competitive Indian market fell an annual 12 percent to 194 rupees ($4.3) for the quarter. Africa ARPU was down 3 percent from the previous quarter at $7.2.
Bharti has earmarked as much as $3.1 billion in capital expenditure for its India, Africa, South Asia and tower business for this fiscal year, said Manik Jhangiani, group CFO at Bharti Enterprises.
Bharti, which accounts for a fifth of India's mobile market of more than 800 million customers, is controlled by billionaire Sunil Mittal, who started his career selling bicycle parts and ventured into telecoms in the mid-1990s when India opened up the market for private sector participation.
India's mobile sector has been hit by a multi-billion dollar telecoms scandal, which involves mostly the newer firms that were given licences in 2008. Dozens of licences including those now held by arms of Telenor and Etisalat face risk of cancellation.
Bharti has not been implicated in the scandal. But possible steep increases in prices of 2G mobile spectrum and a one-time fee proposed for spectrum holding beyond 6.2 megahertz are overhangs on companies such as Bharti and Vodafone's local unit.
India's telecoms ministry is yet to take a final decision on the proposed prices for 2G airwaves. ($1=44.6 Indian rupees) (Writing by Sumeet Chatterjee; Editing by Ranjit Gangadharan and Muralikumar Anantharaman)