New Delhi: Bharti Telecom Ltd, the holding company of Bharti Airtel Ltd, will acquire as much as 4.62% in India’s largest telecom operator, the company told the National Stock Exchange on Monday.

Bharti Telecom said that the acquisition price would not be higher by more than 25% of the price arrived at as per the weighted average market price of Airtel stock. The weighted average market price for Airtel’s share in the last 60 days is Rs417.35.

At this price, the size of the transaction is likely to be between Rs7,700 crore and Rs9,623 crore.

As many as 184.71 million shares owned by Indian Continent Investment Ltd (ICIL) will be acquired on or after 3 November, the company said.

ICIL will continue to hold 2.03% in Bharti Airtel after the proposed transaction.

With this transaction, Bharti Telecom’s stake in Airtel will increase to 50.1% from 45.48%.

The Mittal family, promoters of both Bharti Telecom and Bharti Airtel Ltd, own 51% in Bharti Telecom and by virtue of that, own around 30% effective stake in Airtel. With the proposed deal, the total shareholding of the family in India’s largest telco is set to rise.

It will still remain the second-largest shareholder in the Indian company after Singapore Telecommunications Ltd (Singtel), which is the largest shareholder in Airtel with a 36.27% stake.

Reacting to the news, shares of Airtel rose 1.59% to Rs492.80 while the benchmark Sensex gained 0.33% to 33,266.16 points.

India’s telecom industry has been disrupted by Reliance Jio Infocomm Ltd as the Mukesh Ambani-promoted firm made moves to grab customers with its cut-price offers.

The onslaught has increased competitive intensity and forced rival operators to raise capital expenditure.

Deteriorating balance sheets have increased the pace of consolidation—benefiting the top incumbents. Smaller private operators have lost 6 percentage points of subscriber and 10 percentage points of revenue market share to top incumbents and Reliance Jio over the past 12 months.

As a result, investors have stayed buoyant about Jio’s main rival and telecom market leader, Airtel.

Bharti Airtel’s share price has gained more than 60% in a year, outperforming the BSE Sensex’s, which gained 41%, with a promise of even better times to come.

Stock analysts have stayed bullish on the firm and despite this outperformance, analysts see Airtel’s stock gaining further over a 12-month period, which indicates an upswing in its earnings on expectations that Reliance Jio will have to slowly raise its pricing and end promotions by the end of this fiscal year.

Jio has hiked tariffs for its flagship scheme by about 15% in October, lower than the 26% and 36% increase on the previous two occasions.

“RJio’s hike reduces the overhang on ARPUs (average revenue per user)—and on the flipside, could give Airtel some leeway to raise prices (even as it offers more data GBs to customers to show its strong value proposition). Furthermore, with industry consolidation playing out faster than expected (the recent Airtel-Tata Teleservices announcement is an example), we believe Airtel could benefit from rising subscriber market share as well," analysts at Morgan Stanley Research said in a note to investors on 22 October.

“Airtel stock may already have priced in some optimism on this front – but we believe it has more upside. Any pullbacks should be used to further increase positions in the stock," they added.

Analysts at Goldman Sachs Equity Research have raised the price target for Airtel’s stock by 16% to Rs545 in the next one year as “investors appear to have turned incrementally positive on Bharti’s ability to sustain and grow market share in a consolidating wireless market".

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