Bharti Airtel: unlocking value
Mar 10, 2013 (Mint - McClatchy-Tribune Information Services via COMTEX) --
According to news reports, Bharti Airtel Ltd may sell a 25% stake in its satellite television, or direct-to-home (DTH) business. The business is estimated to be valued between $1.1 billion and $1.2 billion, which works out to around 3% of Bharti's total enterprise value of $34.5 billion.
Of course, this isn't surprising, considering that the DTH business contributed to just 2% of revenues in the 12-month period ended December. Revenues of the segment stood at Rs.1544 crore for the period, with earnings before interest, tax, depreciation and amortization of Rs.36.5 crore.
At the mid-range of the above-mentioned valuation band, the business will be valued at a little over four times on an enterprise value to sales basis. Assuming there is no debt on the DTH business books, Bharti could garner over Rs.1550 crore from a 25% stake sale. Again, given Bharti's net debt of Rs.64282.5 crore, the inflows appear like a drop in the ocean. Even so, it's good to see the company's intent to reduce debt and unlock value by roping in other investors for some of its businesses.
Late last year, the company listed Bharti Infratel Ltd, and even though the company didn't raise funds by selling its own stake, the tower infrastructure subsidiary issued fresh equity and cut its own leverage. Some months ago, The Economic Times newspaper had reported that the company is planning to merge its Indian and African businesses for cost synergies. All of this is an acknowledgment that growth in the core mobile phone business has slowed and the company is looking to eke out all possible gains for shareholders by cutting costs and unlocking value in subsidiaries.
Meanwhile, the business fundamentals for Indian telecom operators are getting better. There is much more discipline with pricing and the recent auction failure suggests the burden of regulatory costs should ease. Bharti's shares, which had risen sharply earlier in the year, have given up a large part of those gains.
"The stock is still not cheap at FY14 15x price to earnings of 19-24 times, especially given the uncertainty around growth projections; Africa hasn't lived up to expectations -- the business continues to trend well below management's 40% EBITDA aspiration by March 2014 (currently 27%), which itself raises questions around the price paid and its inherent potential; 4) domestic voice prices will remain volatile given there are still 4-5 viable players in each circle," analysts at Nomura Research point out in a recent note.
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