Bharti Group’s decision to sell a 20% stake in DTH arm Bharti Telemedia to Warburg Pincus for $350 million (Rs 2,258 crore) will enable flagship Bharti AirtelBSE 0.04 % fund its capital expenditure plan aimed at bolstering 4G network and combating Reliance Jio Infocomm, analysts said.
Last month, the Sunil Mittal-led telecom market leader boosted its capex guidance for fiscal 2018 to Rs 25,000 crore from the earlier Rs 20,000 crore. Gopal Vittal, Bharti Airtel’s managing director for India and South Asia, had said the additional capex would be deployed toward bolstering its radio network and fibre capacity as it tries to expand market share and improve customer experience amid continuing price volatility.
“When pricing is low, capex is required to deliver better customer experience amid the upsurge in data throughput and demand,” Vittal said during a recent earnings call.
While analysts expect the proceeds from the stake sale to go primarily towards this purpose, some guess the company to use part of the money to reduce debt.
“Cash raised from the stake sale in the DTH business to Warburg Pincus should enable Bharti Airtel to fund capex on the India wireless business,” Morgan Stanley said in a note seen by ET.
JM Financial said the transaction, though not truly about value-unlocking, would help Bharti Airtel “marginally reduce its balance sheet leverage”. It also indicated a possible listing of the Bharti group’s DTH business in future.
Analysts at BNP Paribas said the deal with Warburg, though not a large one, shows “Bharti can dip into its DTH business, besides towers and African assets should it want to deleverage its balance sheet”.
Brokerage Kotak Securities said the stake sale would “essentially be immaterial from a net debt reduction standpoint” for Bharti Airtel, which would “receive $263 million, which is less than 2% of its consolidated net debt at end 2QFY18”.
Under the deal announced on Tuesday, Bharti Airtel will sell a 15% stake in Bharti Telemedia to Warburg Pincus, while another Bharti group company that owns 5% in the DTH unit will offer its entire stake to the private equity firm.
Kotak said the rationale of the transaction was possibly to “set a benchmark for the Bharti DTH arm’s valuation for a future further stake sale in the private or public markets”.
Morgan Stanley said the stake sale valued Bharti’s DTH business at $1.75 billion, marginally ahead of the brokerage’s $1.65 billion estimate.
BNP Paribas backed the view, saying Bharti’s DTH business stake sale had transpired “at a significant premium to cost”. The parent company has made a $1.15 billion cumulative investment in Bharti Telemedia up to September 2017, it added.
Morgan Stanley estimates Bharti Telemedia’s revenue and operating income (Ebitda) to see a 10% and 12% compounded annual growth rate (CAGR), respectively, during fiscal 2017-20.
For the financial year through March 2017, Bharti’s DTH unit reported gross revenue of Rs 3,430.6 crore, 17.6% higher from the year before.
JM Financial said Warburg Pincus, which will get a board seat in Bharti Telemedia, would also “benefit from likely earnings compounding and free-cash-flow generation potential in the DTH sector”.
Bharti Airtel’s shares closed 1.34% lower at Rs 516.95 on the BSE Wednesday, compared with a 0.53% drop in the benchmark Sensex.
Source: Economic Times