MOSL: BHARTI AIRTEL (Buy)-Bharti announces acquisition of TTSL – a strategic move
​BHARTI AIRTEL: Bharti announces acquisition of TTSL – a strategic move; Deal highly in favor of Bharti, in our view
(BHARTI IN, Mkt Cap USD24.6b, CMP INR400, TP INR470, 18% Upside, Buy)
- Bharti Airtel (BHARTI) has announced the acquisition of Tata Teleservices' (TTSL) consumer telecom business at a potential EV of INR20b (as per media sources). The deal implies EV/sales of meager 0.2x. The move is expected to expand Bharti's gross revenue market share to ~39% and subscriber market share to 30%.
- The acquisition will allow BHARTI to further strengthen its spectrum portfolio by adding 71.3mhz of liberalized spectrum (40%) in the 2,100mhz and 1,800mhz bands (also adds 2nd and 3rd carrier spectrum). We believe the company may not retain the rest of the administered spectrum (60%), which is valid for meager 2-3 years (expiry in 2021), restricting capex.
- Our workings indicate potential EBITDA of INR30b from the TTSL acquisition in 2-3 years, which is ~9% of BHARTI's consolidated EBITDA. At 7x EV/EBITDA, it offers potential upside of 12%. We remain positive on BHARTI, with a target price of INR470.
Revenue market share to increase 5% at EV of INR20b (EV/sales of 0.2x)
BHARTI announced the acquisition of TTSL’s consumer business at a meager enterprise value of ~INR20b (as per media sources). This reflects the diminishing bargaining power of sellers in the ongoing telecom sector consolidation. The deal implies just 25% deferred spectrum payment liability taken by BHARTI out of the total deferred payment liability of INR82b. According to TRAI data, TTSL’s annualized revenue stood at INR88.7b (annualized 1QFY18 numbers), with a 5% gross revenue market share (6.1% AGR market share). TTSL has 35m VLR subscribers, with a 3.5% subscriber market share. The deal implies meager EV/sales of 0.2x. Even if we assume revenue loss of 25% due to the CDMA shutdown and the loss of second SIM usage (of TTSL), the deal should allow BHARTI to increase its gross revenue market share to 38% (AGR market share to ~40%). This could allow the company to retain its leadership position, considering Vodafone-Idea may lose 300-400bp market share in the ongoing merger process.
Bharti Airtel provides telecommunication systems and services to individuals and businesses in India with operations in 20 countries across Asia and Africa. In India, Co.'s product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Co. had nearly 287 million customers across its operations at the end of Dec 2013.
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