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

The Economic Times - - Companies & Economy - Our Bu­reau

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.

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