shares overview of telecommunication industry companies Bharti Airtel

Bharti Airtel Ltd (updated - 14 Jan 2010)
While Bharti Airtel’s acquisition of Warid Telecom, Bangladesh’s fourth largest wireless service provider, gives its global expansion plans a small prod, it is hardly significant. Warid’s estimated revenues for CY09 are pegged at $80 million, and it has a subscriber base of 2.9 million giving the company ashare of nearly six per cent in a competitive six-player market. On Tuesday, Bharti Airtel, which has a market cap of $26 billion and 116 million customers, announced that it will pay $300 million for a 70 per cent stake. This pegs the equity value of Warid at around $428 million, while reports estimate Warid’s debt at around $400 million. Considering the net debt of Warid (post cash infusion by Bharti), its enterprise value (EV) will be in the $625 million range, translating into an EV to subscriber ratio of $216.

While the deal appears to be at a discount to Bharti’s EV ratio of $250, the path ahead for Bharti will be tough considering Bangladesh’s market dynamics and Warid Telecom’s position. Though the Bangladesh wireless market has about 50 million subscribers with a penetration of 32 per cent (in a population of 160 million), considering that alittle less than half the population lives below the poverty line, the total market is pegged at around 90 million. An HSBC report suggests that operators will find it tough to expand once the subscriber base touches 70 million. Average revenues per user (ARPUs), too, at around $3 per month are 40 per cent lower than Indian wireless equivalent. Moreover, the top three players in the market control 88 per cent share and have backing of world telecom majors NTT Docomo, Orascom and Telenor. This will make it tough for Warid to expand its presence in a market that is growing by about 15 per cent every year with sluggish net additions observed in the last four months. The sector could see more consolidation believes UBS, as the fifth largest player, Pacific Bangladesh Telecom with a market share of four per cent is 45 per cent owned by SingTel.

While Bharti has got a foothold in the Bangladesh market, profits at the operating level, says HSBC, are at least a year-and-a-half away and will require Bharti to triple Warid’s subscriber base to 9 million requiring sizeable investments in a tough competitive environment.

The deal, considering the challenges Bharti will face in expanding in Bangladesh and the price paid for it, has not been received well by the Street. The scrip has lost 3.1 per cent over two days as against the Sensex’s 0.1 per cent decline. With the deal hardly making much of a difference to Bharti’s financials, analysts have kept their earnings estimates for 2010-11 unchanged at around Rs 2122 level, which gives it a P/E of 17 times. With a price target of around Rs 330 pegged by analysts, there is little room for an upside.
source - BS

Bharti Airtel Ltd (updated - 16 Feb 2010)
After two failed attempts to take over MTN, Bharti Airtel is trying again to gain a foothold in the African market. While it has recently acquired Warid, asmall Bangladesh-based telecom player, it is now in talks with Kuwait-based Zain Telecom to acquire the latter’s African unit, Zain Africa BV, for an enterprise value (EV) of $10.7 billion (Rs 48,150 crore).

While finer details haven’t been spelt out, assuming debt is part of the deal and that Zain Africa has 45 million subscribers spread over 15 African countries, Bharti will be paying a reasonable $237 asubscriber, which is well below Bharti’s EV (enterprise value) per subscriber of $250 and the $280 a subscriber it paid for Warid.

The African acquisition could well have to do with penetration levels, which at an average of 30-40 per cent across Africa indicate there is potential. The African market is relatively less competitive with the average revenue per user (Arpu) at $3-25 per month (average of $8-10).

The Indian market, which has been growing at a rapid rate (50 per cent year-on-year growth in CY09), will most likely become saturated over the next three years as new players try to grab customers and existing players try to build their base in the Tier-II and Tier-III towns. Most players have already seen their Arpu decline in the last two years.

Another reason for overseas expansion could be competitive pressures in the domestic market which have seen Bharti lose both subscribers and revenue share. For the December quarter, the company’s subscriber and revenue market shares slipped the most among national players (excluding BSNL) to 23 per cent (220 basis points) and 32.4 per cent (70 basis points), respectively.

Though the investment in Zain Africa could prove to be beneficial over the long term, the markets are probably concerned about the short-term pressure from funding the deal, losses at Zain and investments required to expand the business over the next few years.

Bharti’s stock, which tanked 9 per cent on Monday to Rs 285, is trading at 12.5 times its 2010-11 estimated earnings per share of Rs 22.7 and may continue to be under pressure in the near term.
source - BS

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Bharti Airtel Ltd (updated - 01 April 2010)
Bharti Airtel has finally signed the $10.7-billion deal to acquire the African assets of Kuwait’s Zain. The acquisition of Zain Africa will add 42 million subscribers in 15 countries to Bharti’s existing 137 million customers.

Bharti, which has already tied up loans to fund the buy, will add $1.7 billion debt. Of the remaining, it will pay $8.3 billion to Zain now, and the balance $700 million after ayear. For Bharti, which has been struggling with falling tariffs and saturation in urban markets, the situation in India is likely to get worse due to stiff competition.

In this context, the entry into Africa could not have come at a better time. From the growth perspective, the 15 countries are an attractive market, with low penetration levels of 35 per cent and an average revenue per user ($8) that is 60 per cent higher than India’s. More importantly, 80 per cent of geographies have three or fewer competitors compared to 12 in India.

Though the deal takes Bharti into the big league, analysts are concerned about the impact of the high-cost acquisition on the company’s earnings and its ability to integrate operations. On the valuations front, analysts believe that Zain’s EV/Ebita of 10.7 (Zain made losses of $112 million for the first nine months of CY09) is way over Bharti’s own metric of 7.7.

This deal will take the company’s net debt to over $10 billion from the current $414 million, with debt-to-equity ratio rising to over 1 from 0.05. Analysts expect FY11 earnings to be affected negatively by about 20-25 per cent due to higher interest outgo. Further, it will be difficult for it to integrate operations in 15 African countries, which have their own regulators.

The telecom space has been a laggard and Bharti is no exception, dropping 36 per cent from its FY10 highs. The stock, at Rs 314, trades at 12 times FY10 estimated earnings of Rs 26, with few upsides in the near to medium term.
source - BS

To expand its network, Bharti will be looking at network sharing with other operators in Africa. Till now, Bharti has worked on passive sharing. Going for active sharing on such a large scale may be a challenge. This can be a short-term arrangement till it sets its own network, reckon analysts.

Moreover, it will also be taking the minute factory model to Africa. Here, the company outsources network planning and information technology backbone. This allows rapid network expansion and conversion of fixed costs to variable costs. The advantage Bharti will have is that Zain operations are generating cash and the strain will not last longer than many estimates.

Moreover, Bharti has demonstrated its abilities in India to innovate and reach out.
source - business standard

Bharti Airtel Ltd (updated - 10 June 2010)
From being an Indian player to breaking into the top-five global wireless telecom league is abig jump for Bharti Airtel. While this move is seen as apositive, there are concerns that this jump might have a hard landing.

The balance sheets are likely to be under stress; there has been a Rs 12,000-crore outflow for 3G licenses and additional debt for the Zain acquisition. This will see interest cost rising by around Rs 900 crore ($200 million) a year, says the management. The net debt to earning before interest, tax, depreciation and amortisation (Ebitda) from almost nothing has reached the 2.8 times level. Though this is below that of Reliance Communications and Idea Cellular, whose levels are way above three times, the stress will persist. The outcome of the 2G spectrum additional payout, yet to be resolved, will also add. On the profit and loss side, there will be additional pressure, as the tax outflow is also slated to rise. The cash tax outflow as a percentage of profit before tax grew to 21.8 per cent in FY10 from 13.8 per cent in FY09. A few more circles, which contribute 45 per cent to revenues, will move out of the tax holiday period within the next two years. The focus will therefore be on the company’s ability to boost Zain’s market share.

Bharti Airtel Ltd (updated - 12 Nov 2010)
Bharti Airtel reported a 47 per cent year-on-year (y-o-y) rise in consolidated revenues at `15,215 crore in the September quarter. However, salary hikes in June and higher costs, including the tax outgo, raised operating expenses by 29 per cent. This pulled the bottom line 27 per cent y-o-y to `1,661 crore. Earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 19 per cent to `5,121 crore.

The seasonality impact on minutes of usage (MoU) per subscriber (down 5.5 per cent sequentially) hurt India and South Asia mobile revenues, which were flat, belying expectations of a bounce-back after positive momentum over the last couple of quarters.

Ebitda margins of Africa operations, unexpectedly, contracted 360 basis points to 23.9 per cent. The management has highlighted sufficient elasticity so far, with MoUs up nine per cent against a decline of nine per cent in revenue per minute. This elasticity was key to the success of operations in India, as increased volumes drove revenues despite lower realisations. Replicating this model can turn around the Africa operations, and consequently, drive the stock in the next few quarters, say analysts.

However, with 3G and mobile number portability coming up in the next quarter, domestic operations are likely to come under pressure, as investment picks up and revenues lag. With margins likely to be strained, analysts expect the stock to remain under pressure in the near term, as earnings estimates see downward revisions. The stock, at `317.45, trades at about 17x 2020-11 earnings per share estimates.
source - business standard