Bharti Airtel shares close 8% up, post biggest single day gain in four years
Mumbai: Bharti Airtel Ltd closed 8% higher, its biggest gain in four year, while Tata Teleservices Maharashtra Ltd (TTML) hit 10% upper circuit for the second session on Friday after Bharti Airtel and Tata group announced an agreement to merge their mobile operations.
During the day, Bharti Airtel rose as much as 9%, to hit a high of Rs436. So far this year, it has gained 40%. TTML gained 10%, though it declined 20% year to date.
Bharti Airtel closed at Rs431.60 on the BSE, up 7.89%, its maximum gains since 10 September, 2013, from its previous close, while TTML rose 10% to closed at Rs4.86. India’s benchmark Sensex index rose 0.78% to closed at 32,432.69 points.
Many analysts have termed this deal as a value-accretive transaction for Bharti Airtel and upgraded the stock and increased its target price.
Airtel will acquire TTML’s assets on a debt-free, cash-free basis, but will assume Rs2,000 crore of Rs10,000 crore of the unpaid spectrum fees that the Tata group owes to the department of telecommunications. All other liabilities and dues will be settled by the Tata group.
TTML had a subscriber base of 44 million and revenue market share (RMS) of 5% at the end of the June quarter. With the merger, Airtel’s overall subscriber base is now expected to increase to as much as 351 million as against the combined Vodafone-Idea’s projected 391 million consumer base.
According to Kotak Securities, the combined net debt of Tata Teleservices Ltd (TTSL) and TTML stood at nearly Rs40,000 crore at end-FY2017.
“Clearly this acquisition is positive for Bharti as it gives them 5% additional revenue market share. More importantly, we believe that the real accretion lies in synergies. In our view, TTSL was operating with a cost structure built for much higher market share, and thus it will be easier for Bharti to take out large part of these costs (as much as 40-50%) and the acquisition could be highly EBITDA accretive by FY20/FY21. Although near-term earnings could remain depressed led by competition and regulatory impact, we believe that long term structural outlook is beginning to improve. We like the steps incumbents are taking steps to repair the balance sheets (tower deals) and RMS consolidation is flowing to the incumbents,” said BoBCaps Research, in a note to its investors.
JM Financial Institutional Securities Ltd have upgraded the stock to “buy” rating. Kotak Securities upgraded the stock to “add” from “reduce” and increased the price target to Rs470 from Rs430 a share, Credit Suisse upgraded the stock rating to “neutral” from “underperform” and raised its price target to Rs400 from Rs320; and HSBC upgraded the stock rating to “buy” from “hold” and upped the price target to Rs490 from Rs421 a share.
“We believe the deal is significantly in favor of Bharti for two reasons, improvement in the revenue market share should translate into strong EBITDA contribution on the back of operating synergies, it should strengthen Bharti’s 2,100mhz and 1,800mhz spectrum portfolio in the key circles. We have not factored in the upside from the deal as we await further clarity,” said Motilal Oswal, in a note to its investors.
Of the analysts covering Bharti Airtel, 17 have a “buy” rating, seven have a “hold” rating, while 11 have a “sell” rating, according to Bloomberg data.