Bharti Airtel, which started the trend of merging non-performing units under a central management (think ‘One Airtel’ strategy), may now do the same for its tower arm – Bharti Infratel.
Going by analysts, the company, India’s largest telecom service provider, plans to merge its loss-making African and Indian tower assets in a bid to have more effective control over margins.
“After more than two years operating in Africa, we believe Bharti has now moved away from its “investment mode” strategy, and is now focusing on extracting efficiencies, reducing costs and improving return on investment,” Sachin Salgaonkar, Paras Mehta, Swosti Chatterjee and Piyush Mubayi of Goldman Sachs said in a report last week.
Analysts expect Bharti’s Africa margins to be Ebitda positive in the quarter ended June, though growth is likely to be subdued.
“We expect $ revenue growth of ~1.3% QoQ (6.4% YoY) for Bharti Africa, impacted partially by cross-currency movements,” Religare analysts Rumit Dugar and Udit Garg wrote in a telecom results preview.
The Goldman Sachs quarto appeared to concur. “If Bharti continues to limit its investments over the medium term, then we see risks to longer term growth prospects, as its major competitors remain aggressive in making investments.
We also do not expect the company to reach its target of 40% Ebitda (earnings before interest, tax, depreciation and amortisation (Ebitda) margins in next 2-3 years. We believe that due to slowing revenue growth, the company had to renegotiate some of its contracts with vendors, which is leading to additional opex. This may put some pressure on margins over the longer run,” the analysts noted.
This ‘negotiation’ not only means Bharti Infratel is trying to lease out more of its towers to competitors, but may also be actively looking to merge its African tower assets with Bharti Infratel, especially since its plans to set up independent tower companies in Africa is taking longer than envisaged.
“As Bharti Infratel management has expressed interest in utilising its cash to look for opportunities to acquire tower companies in India/overseas (including Africa), there are concerns that Bharti Infratel may look to acquire Bharti Africa’s towers, although management has indicated that there is currently no proposal to do so,” the Goldman Sachs analysts noted.
Merging with a competitor tower company also cannot be ruled out.
“Tenancy ratio is a problem for Inratel, and data storage from other telcos will help improve rentals in the next two years. A merger with a tower company like Viom looks attractive and may be possible,” said an analyst, requesting anonymity.
“However, Bharti needs to be careful of overlapping towers, as rationalisation for the same will be very expensive for Infratel,” the analyst cautioned.
Telecom industry experts have for a while maintained that mergers and acquisitions (M&As) and other forms of consolidation are the only way out for debt-ridden telecom operators in India. While the M&A option hasn’t yet been explored by independent telcos, sharing of assets – a step avoided till recently – has suddenly become the order of the day. Reliance Communications and Reliance Jio have led the way, signing a long-term memorandum of understanding to share all assets, including towers, fibre and other entities.
