Is Bharti Airtel now preparing a war chest?
Bharti Airtel Ltd’s September quarter results were slightly ahead of the Street’s estimates, with profit of the mobile services business rising as much as 19% year-on-year (y-o-y). Despite being a seasonally weak quarter, the company managed to maintain profit margins at June quarter levels. Note that Idea Cellular Ltd had reported a mere 2% growth in y-o-y profit.
But the big takeaway is Bharti Airtel’s decision to take board approval for exploring the sale of a significant stake in its tower infrastructure subsidiary, Bharti Infratel Ltd.
Analysts at Kotak Institutional Equities said in a note to clients that if Airtel is willing to bring its stake down to 26%, from 72% currently, it could raise as much as Rs33,000 crore, or $5 billion.
Of course, this is conjecture, although the timing of the announcement is interesting.
Reliance Jio Infocomm Ltd has just announced it will invest another Rs1 trillion in its business until the year 2020. Vodafone India Ltd announced recently it has received an infusion of Rs47,700 crore from its parent this year. Airtel appears to be stepping up and saying, “We have deep pockets too.”
Currently, its level of leverage is far lower than some of its peers, and a stake sale can strengthen its balance sheet further.
But the announcement may also mean that the company is preparing for a long and arduous battle with Jio and Vodafone. This is clearly not a good sign for the industry.
As it is, data revenue growth has continued to fall even before the full impact of Jio’s launch is seen.
Just as Idea did on Monday, Airtel, too, reported a 20% y-o-y decline in average realizations in the data segment. Growth in data revenue fell to 24% y-o-y, from 35% in the June quarter.
In the telecom industry, it looks like there’s too much capital chasing returns that seem to be diminishing with each passing day.