Airtel-Tata deal beneficial but raises integration risk: S&P Global Ratings
New Delhi: Bharti Airtel Ltd’s takeover of Tata Teleservices Ltd’s consumer mobile business will bolster its subscriber and revenue market share but could raise integration risk at a time when the Sunil Mittal-led company is also combining operations with Telenor, S&P Global Ratings has said.
S&P said, however, that Airtel’s rating is “unaffected” by its recently-announced acquisition of the Tata Group firm. “... In our view, this deal increases integration risk for Bharti because the company will be simultaneously integrating the operations of Telenor India (acquired last fiscal) and Tata Teleservices over the next 12-18 months, while responding to the intense competition,” it said. The S&P Global Ratings note added that it expects Bharti to be able to manage the integration risk because it has successfully managed such deals in the past, particularly in the African markets.
The deal will be neutral to Bharti’s leverage in 2017-18 and 2018-19, it said. Airtel will assume a small portion of the deferred spectrum liability but not any debt obligation of Tata Teleservices. “We believe Bharti is committed to maintaining its credit profile and will continue to take steps to contain its leverage within our rating tolerances,” it pointed out.
The “cash-free and debt-free” acquisition will boost Bharti’s India subscriber and revenue market share to 31.9% and 40.6%, respectively. The subscriber and revenue market share stood at 27.7% and 34.8% respectively, in the three months ended 30 June 2017.
Like many industry analysts, S&P too believes that the deal will help reduce the gap between Bharti Airtel and the new combined force of soon-to-be-merged Idea Cellular and Vodafone India. However, in the same breath, it cautioned that market share numbers are prone to significant changes, given the intense price competition in the Indian telecom sector.