Te­lenor Buy to Arm Air­tel Amid Con­sol­i­da­tion Wave

The Economic Times - - Companies: Pursuit Of Profit - Kalyan.Par­bat|@ times­group.com

Kolkata: Bharti Air­tel’s cash­less buy­out of Te­lenor In­dia will help un­der­pin the tele­com com­pany’s de­fence of lo­cal mar­kets in an in­dus­try that is con­sol­i­dat­ing af­ter the im­pact Re­liance Jio In­fo­comm’s free voice and data ser­vices have had on the coun­try’s big­gest car­ri­ers.

In­dus­try ex­perts and sec­tor an­a­lysts said the ac­qui­si­tion would give Bharti Air­tel ac­cess to ad­di­tional, lib­er­alised 4G air­waves in the 1800 Mhz band in the large pop­u­la­tion cen­ters of Gu­jarat, Ut­tar Pradesh East and West, re­gions where the com­pany’s present ca­pac­ity is lower than av­er­age. In par­tic­u­lar, the buy­out would bol­ster Bharti Air­tel’s de­fences against a likely Voda­fone-Idea Cel­lu­lar com­bine in these mar­kets.

“Te­lenor In­dia brings valu­able, lib­er­alised 4G spec­trum in the 1800 Mhz band in UP-East, UP-West and Gu­jarat,” bro­ker­age UBS said, adding that ac­cess to such air­waves “is par­tic­u­larly im­por­tant, given the re­cent an­nounce­ment of a po­ten­tial Voda­fone-Idea merger, which would have made Bharti Air­tel’s spec­trum po­si­tion rel­a­tively weaker.”

Bharti said this week it would take over Te­lenor In­dia’s out­stand­ing spec­trum pay­ments worth around ₹ 1,650 crore and other op­er­a­tional con­tracts, be­sides em­ploy­ees and 44 mil­lion cus­tomers.

Te­lenor’s In­dia unit has op­er­a­tions in six cir­cles — Andhra Pradesh, Bi­har & Jhark­hand, Gu­jarat, Ma­ha­rash­tra, Ut­tar Pradesh (East) and UP (West). It also has spec­trum in As­sam where it hasn't started op­er­a­tions. These seven cir­cles con­trib­ute about 35% to Bharti’s to­tal rev­enue, and the ad­di­tion of Te­lenor In­dia cus­tomers would take In­dia's big­gest phone com­pany to a sub­scriber base ex­ceed­ing 300 mil­lion.

Bro­ker­age Moti­lal Oswal backed UBS, say­ing a 4G net­work roll­out on 1800 Mhz “re­mains the most ef­fi­cient due to its well-de­vel­oped ecosys­tem.” It fur­ther said ca­pac­ity ad­di­tion on this band should lead to “cost ad­van­tage com­ing from net­work de­sign and equip­ment de­ploy­ment.” Bank of Amer­ica-Mer­rill Lynch said the deal would en­able the mar­ket leader to harness the car­rier ag­gre­ga­tion tech­nol­ogy to boost 4G ca­pac­ity in UP-East, UP-West, Bi­har and Andhra Pradesh as Air­tel’s spec­trum is con­tigu­ous with Te­lenor In­dia’s in these key mar­kets.

Ac­cord­ing to an­a­lysts, Bharti Air­tel could breach the 50% rev­enue mar­ket share (RMS) cap in Bi­har un­der the present M&A rules. Deutsche Bank es­ti­mates Air­tel’s RMS in “Bi­har is likely to be in the 53-54% range” on con­clu­sion of the Te­lenor In­dia deal.

Bro­ker­age Phillip Cap­i­tal, in turn, ex­pects the Te­lenor In­dia ac­qui­si­tion to add ₹ 1,300 crore to Bharti Air­tel’s Ebitda (earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion, and amor­ti­za­tion). “The Ebitda ad­di­tion will trans­late to 4% Ebitda growth in FY18, clearly in­di­cat­ing that more growth op­tions are avail­able for Bharti,” an­a­lysts at Phillip Cap­i­tal said in a note.

The global bro­ker­age also ex­pects the deal to ring in “sig­nif­i­cant opex syn­er­gies” that will lead to a re­duc­tion in net­work and SG&A (sell­ing, gen­eral and ad­min­is­tra­tive) costs.


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