Monday, February 15, 2010

BHARTI AIRTEL likely to acquire ZAIN's South African Assets

The board of Kuwait’s Zain Telecom has accepted a $10.7-billion (Rs 49,700 crore) offer from Bharti Airtel for the bulk of its African assets, breathing new life into the Indian company’s cherished ambition of transforming itself into an emerging market multinational. Details about the deal are still in progress.
  • If the deal fructifies, the acquisition will give Bharti a firm foothold in a relatively untapped market and pit it in direct competition with MTN, with which it has tried and failed twice to merge. The African operations in the 15 countries that Bharti is seeking to buy are grouped under an entity called Zain International. 
  • Africa has nearly 450 million mobile phone users and a teledensity under 50%, still offering large room for growth for a company which is under pressure battling a tariff war in India’s overcrowded mobile phone market. If it buys Zain’s African operations, Bharti will be catapulted past China Unicom, Sweden’s TeliaSonera, and Germany’s T-Mobile to become the world’s seventh-largest mobile phone company by subscribers. 
  • Funds not a problem for BHARTI : At the end of December, Bharti’s net debt was just 0.1 times its equity and it had cash reserves of about Rs 7,600 crore. 
  • Expansion: The deal will herald a meaningful expansion of the Bharti brand overseas and satisfy an unfulfilled ambition of replicating its successful low-cost model in other markets. Bharti’s footprint will increase to 20 countries from five countries now, if this deal is consummated. 
  • Subscriber Base: The combined subscriber base of Bharti and Zain's African assets will be 164 million, making it the 7th-largest telco in the world. 
  • India is a well-penetrated market for BHARTI: Bharti faces mounting competition in its home market. It has been beaten by Tata Teleservices in monthly subscriber additions for the past 6 months. Urban India accounts for more than 60% of Bharti’s revenues and is already 100% penetrated. Bharti's revenues grew 1.4% in the October-December quarter, its slowest pace in six years. Profits rose a mere 2.4%.
  • BHARTI AIRTEL stock has been a gross underperformer: In the one year to-date, BHARTI stock has fallen 3% while Nifty is up nearly 66%
What Next?

  • The deal is not yet exactly official but if finalized would improve the global reach of BHARTI AIRTEL and after a point of time when you have limited scope of growth in domestic markets, you have to go out and expand out of the country, it happens with many companies and is a big positive for longer term investors. BHARTI would be catering to 20 countries from 5 now and can become 7th largest telecom operator in the world. 
  • Technically speaking, the stock is trading in a downchannel and will be a breakout above Rs 325. Telecom stocks are looking good as the worst may be getting over in them and BHARTI AIRTEL downside looks limited. One can invest in this stock around CMP Rs 297 for targets above Rs 350 and above over 3-4 month period.


VICTORY said...

dear sir, Now that you are aware the market has beaten blue and back Bharatiairtel . What is the sl downside for 3 to 4 months investment ?


Tanmay Gopal said...

BHARTI has been advised as an investment and there is never a stop loss for investment in my view, if you are a trader you will find it very difficult in BHARTI but if you want to hold this is value even at this price.

VICTORY said...

thank you sir....i have entered February F & O @ 295/-... and holding it.