Friday, February 26, 2010

Bharti's African Safari


Bharti's entry into Africa, which has a huge untapped market, via Zain's African assets (ZAF) seems positive from a long-term perspective. It also reduces the risk that may have arisen because of the intense competition in the Telecom sector in India.

Bharti Airtel (BAL) has bid for ZAF (excluding Sudan and Morocco) at US$ 10.7 bn. The acquisition will give BAL control over ZAF and while valuations are at a premium, the strategy will pay rich dividends in the long term.

ZAF’s assets have been impacted in terms of growth and profitability by the currency devaluation and poor economic conditions. ZAF’s revenues declined 12% through 9MFY09 (annualised), but grew 5% based on constant currency. The ZAF acquisition is likely to lead to mild EPS dilution in the second year of acquisition and is expected to be EPS-accretive from 2013. The current fall in BAL’s stock price (11% post announcement) is a chance to accumulate since the performance will likely improve post more clarity on the deal structure and business fundamentals.

Though the current market situation and scope for profitability growth in Africa may look glum but post the credit crisis in ’08, African currencies significantly devalued 3-39%, with African nations highly dependent on natural resources (crude) and remittances. With current mobile penetration at 36% in ZAF’s markets of presence, Africa presents an opportunity similar to that in India in ’08 and will likely witness the maximum interest by global telcos in this decade.

3 comments:

vishal said...

Hello sir, no doubt about the kind of knowledge u possess....
well after reading the post i hav a ques..are the Ambani's sleeping??
and if not r v goin to witness another wave of foreign acquisitions this tym led by Indian telecom companies?
and if yes then can v expect Indian telecos again face2face but this tym not on domestic rather on global front?? and moreover whats the future of this sector supposing that immense competition in global market will again expose these companies to a situation they r facing on domestic front rt nw?

Anirban Dutta said...

Thanks for your compliments Vishal. I don't believe the Ambanis are sleeping ... but yeah not too sure what could be the next move in the telecom sector.

Few points for you to recall on the telecom sector ... here are mine:
1. The Indian telecom sector has pretty significant headwinds in the short term but, return on capital employed (i.e. ROI) is not seen in the near term, so that doesn't make it a very attractive asset.
2. Increase of MAT rate from current 16.5% could see lower reported earnings while hike in customs duty to impact future capex plans of telecom companies.
3. Bharti is already in an expanion spree ... though its MTN deal failed that did not cease their african safari; also they have acquired 70% stake in Warid telecom in Bangaldesh (Industry watchers expect Bharti's entry into Bangladesh to lead the charge in the mobile sector that is expected to grow from 52.4 million in 2009 to 70 million by 2011.)

The future outlook on the domestic front may seem slightly tight but is quite upbeat in the global front.

vishal said...

Surely Ambani's are not sleeping any more.As Anil ambani (ADAG) led RCOM is looking overseas for business in the form of JVs after facing bloodbath on the Indian turf.

http://www.moneycontrol.com/news/cnbc-tv18-comments/anil-ambani-to-visit-sa-likely-to-further-talksmtn_461960.html