Bulls and Brokerages Give a Thumbs Up to Airtel-Tata Deal
Firms give a buy call on Airtel as acquisition set to boost cost position and spectrum portfolio
Mumbai & Kolkata: Shares of Bharti Airtel and Tata Teleservices (Maharashtra) – the listed unit of Tata Teleservices — surged on Friday, a day after India’s biggest telcom operator announced its decision to take over the consumer mobile business of Tata Teleservices.
Bharti Airtel rose 7.9% to close at ₹ 431.60 on the BSE, while shares of Tata Tele (Maharashtra) shot up 10% to close at ₹ 4.86.
Brokerages have turned positive on Bharti Airtel and upgraded their stance from sell to buy as the acquisition of Tata Tele’s wireless business is expected to boost the Sunil Mittal-led telco’s overall cost position and spectrum portfolio and help defend its margins and cashflows against Reliance Jio, analysts said.
The Tata Tele deal, close on the heels of Airtel’s buyout of Telenor India and an earlier spectrum trading deal with Aircel, will allow India’s top phone company “to make it difficult for Jio to continue with its disruptive pricing,” Rajiv Sharma, HSBC director and telecoms analyst, said in a note seen by ET.
Analysts also expect the Tata deal to allow Airtel to defer any major spectrum purchases for a few years and accelerate its ability to migrate the present three-layer mobile network to pure 4G without disrupting the 2G business. This is despite Tata Tele’s spectrum coming up for renewal in five-six years.
Brokerage CLSA said the buyout of Tata Tele’s consumer mobile business would boost Airtel’s lead in spectrum by 200 basis points, taking its spectrum market share to 26%, and also bolster its data services. A basis point is one-hundredth of a percentage point.
“The Tata deal will add capacities in Mumbai, Maharashtra and Andhra Pradesh circles on 1800 MHz band and in nine circles on the 2100 MHz band, strengthening Airtel’s data offering,” CLSA said in a note to clients.
Swiss brokerage UBS said the deal would give Airtel “access to 60,000 km of fibre owned by the Tata group, complementing the Sunil Revenue market share breach for Airtel-Tata combine 44.8 48.1 53.6 49.2 55.8 56.8 55.2 Mittal-led telco’s own 240,000 km of fibre resources, helping it eliminate the gap with Jio’s estimated fibre length of 250,000-270,000 km.
Rating agency Fitch expects the deal to trigger an improvement in Bharti's credit profile as the latter isn’t paying any consideration for the operations. It expects the benefits from additional spectrum, fibre assets and subscribers “will more than offset Airtel’s additional spectrum liabilities.”
The rating agency also expects the Tata Tele deal to help arrest Bharti's ebitda decline and bolster its 4G spectrum portfolio and network position, going forward.
“Assuming the deal completes in 2018, the headroom on Bharti's BBBratings will improve slightly, as we expect its FFO-adjusted net leverage to be around 2.0x-2.1x in the financial year ending March 2019 compared with our expectation of 2.1x-2.2x at 8.8 6.0 12.4 2.4 1.9 1.4 6.6 FYE18,” Fitch said on Friday. FFO is funds from operation.
The Airtel-Tata Tele deal is slated to close in a year with some insiders suggesting this could happen even sooner.
PhillipCapital expects the Tata deal “could add ₹ 30-35 to the target price for Bharti Airtel” and trigger a 5-6% improvement in the telco’s ebitda over FY19. The deal, it said, is likely to increase Bharti’s revenue market share (RMS) by 5% from current levels.
BNP Paribas backed the view, saying the Tata Tele buyout would take Bharti Airtel’s RMS to 41.5%, bringing it “almost on a par with Idea-Vodafone, post-merger.” The Idea-Vodafone’s merged entity’s combined RMS is envisaged at 43%. But some brokerages were unsure of the extent of bullishness investors could ascribe to Bharti Airtel shares.