MTN deal may affect Bharti’s ROC: India Infoline

Bharti Airtel has confirmed that it may acquire 49% stake in South Africa-based telecom major MTN.
Commenting on the deal, Bhavesh Gandhi of India Infoline said, “I think the deal looks positive for Bharti especially since after maybe 500-600 million subscribers, all the major top three operators would hit a barrier. So, Bharti has made the first move of acquiring a sizeable company.”

He further said, “Bharti’s return on capital (ROC) might be affected because MTN, I don’t believe enjoys 25% plus return.”
Also read: Bharti Airtel likely to acquire 49% stake in MTN

Here is a verbatim transcript of the exclusive interview with Bhavesh Gandhi on CNBC-TV18. Also watch the accompanying video.

Q: What have you made of the valuation of the deal from the numbers that you have read so far?
A: On the face of it, it looks positive at least for the party shareholders at Rand 86 price as compared to what the prices have been talked about a year ago. I think this looks positive for Bharti especially since after maybe 500-600 million subscribers, all the major top three operators would hit a barrier. So Bharti has made the first move of acquiring a sizeable company.

Q: The last time around this deal had been done, I am sure you have done some back of the envelope calculations on what the combined revenues might look like, what the combined internals of the company might look like, what do you think right now is doable both in terms of revenue and a combined average revenue per user (ARPU) for Bharti-MTN?

A: I think ARPUs for MTN the last time were slightly on the higher side as compared to Bharti and margins were pretty similar. So on those two key fronts, I think Bharti should not be too much worried. Bharti’s return on capital might be affected because MTN, I don’t believe enjoys 25% plus return. On that front some disappointment could be in.
Q: Do you think the market will be concerned about issues like dilution, funding etc or would it be more enthused by the fact that Bharti is buying very significant topline and subscriber base in an international market with this deal?

A: I think concerns on the topline and return on capital both would weigh on the share price because just acquiring scale - as it is Bharti has a lot of scale with almost 100 million subscribers. So from that point of view, I think concerns would remain especially since MTN has operations in Sudan and Iran, so how do their legal framework comes up remains to be seen.

source: Moneycontrol

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