New Delhi: India’s largest telecom firm, Bharti Airtel Ltd, has affirmed its ambitions to expand beyond India by buying a 70% stake in Bangladesh’s fourth largest telecom firm, Warid Telecom International Ltd.
Declining revenue per subscriber has forced Bharti Airtel to look for firms in overseas markets with higher average returns. Last year, it tried to buy South Africa’s MTN Group Ltd, but failed.
Expansion mode: Bharti Airtel’s CEO?Manoj Kohli (right) with Sheikh Mahmood Nahayan of Dhabi Group, which owns Warid Telecom. AFP
Warid will be Bharti’s second operation outside India. The firm launched services in Sri Lanka last January. It had at least one million customers in the island nation by June. The firm, however, was not willing to share the latest figures.
Bharti will initially invest $300 million (Rs1,362 crore) in Warid to expand its operations. The firm will gain control of Warid’s board and daily operations, while current owners, the Dhabi Group, will hold the remaining 30% stake.
With 116 million subscribers, Bharti is the 10th largest telecom firm in the world in a list topped by China Mobile Ltd (508 million) and Vodafone Group Plc (427 million).
India’s telecom subscriber base is 543.2 million, including 506.04 million mobile phone subscribers.
Warid has 2.9 million subscribers, which is as much as Bharti adds every month in India. But Bangladesh has one of the lowest telecom penetration rates in the world—only 32% of its 160 million population, or 51.2 million, is connected to a telephone. India, with a 1.1 billion population, ended November with a tele-density of 46.32%, far below the global average of 80%.
Analysts have their reservations on the deal.
“They are getting the same number of subscribers that they add every month in India itself at half the average revenue per user (Arpu). Bharti’s present Arpu is around $5 while Warid subscribers have an Arpu of around $2.5,” an analyst with a Mumbai-based brokerage said.
“Apart from this, they have something called a SIM tax of $12 and a 12% import duty on mobile handsets, which makes new subscriber acquisition costs too high for Bharti,” he said, speaking on condition of anonymity.
The Bharti scrip fell 2% to close at Rs322 on the Bombay Stock Exchange, while the benchmark Sensex index shed 0.6% to 17,422.51 points.
Himanshu Shah, an analyst with Mumbai-based financial services firm Religare Hichens Harrison, does not see Bharti gaining significantly from the purchase due to Warid’s small scale of operations.
But Shah said the deal was reasonable, valuing Warid at $430 million, or $154 per subscriber—a 25% discount to Bharti’s equity value per subscriber of $200 in India.
“After the MTN deal fell through in October, Bharti has been on the lookout for smaller acquisitions in the South Asia region. The Warid deal is the first step in that strategy,” Manoj Kohli, chief executive of Bharti, said in a statement.
The deal underlines Bharti’s intent to expand in international markets, chairman Sunil Mittal said.
Last year, Bharti called off its negotiations with MTN for a $23 billion merger. The two firms had extended negotiations twice, but called the deal off reportedly due to hurdles posed by the South African government. At the time, many analysts said Bharti had to expand globally to maintain growth momentum. But they also said Bharti should buy licences in countries rather than merge with telecom firms.