BackAirtel’s preferential issue likely to get strategic investor onboard
Market watchers say the telecom company could also be considering an acquisition
PremiumBharti Airtel's decision to consider equity issuance on a preferential basis could be due to a strategic investor entering or an acquisition by the carrier, even as the second largest service provider didn't need immediate capital, according to market watchers.
The Sunil Mittal owned telecom services provider notified exchanges on Monday that its board will consider a proposal for issuance of equity capital through a preferential issue on 28 January, Friday.
It did not mention the quantum of capital raise or the timing, but added that the issuance will be to non-promoters implying that promoter stake in the company will get diluted post the potential issue.
"Given that Bharti's business does not need capital immediately, a preferential equity issuance could be due to a strategic investor entering Bharti Airtel or an acquisition by Bharti Airtel," said analysts at Jeffries equity research in a note to clients on Tuesday.
An issuance to usher in a strategic investor that boosts its enterprise or digital offerings will be seen positively, but any large acquisitions will be viewed negatively, it added.
“Bharti Airtel has been increasing its focus on the enterprise business and a partnership, potentially with a hyperscaler, could help scale its enterprise business further. Similarly, any strategic investor that could help improve Bharti's digital offerings would be seen as a positive," the research firm said.
The carrier has been beefing up its enterprise business which includes data centres and cloud competence, through Nxtra, besides having a bandwidth-on-demand strategy to cater to global clients. Brokerages have pegged the enterprise business – under Airtel Business – as the company’s most profitable.
On the digital front, the carrier has properties including Wynk Music, Airtel X stream, Airtel Thanks, Mitra Payments platform used by a million retailers, Airtel Ads, Airtel IQ, Airtel Secure and Airtel Cloud.
Analysts however flagged that the potential equity capital raise may be an overhang on Bharti's stock price in the near term, if the size of the issue was large. The carrier’s scrip closed at ₹711.9, up 3.23% higher on Bombay Stock Exchange Tuesday.
The US-based equity research firm noted that the announcement of issuance on a preferential basis came as a surprise since it felt that the second largest carrier did not need capital immediately.
The carrier recently prepaid its spectrum liabilities of more than Rs 155 billion and it can also call the pending rights issue capital of Rs 157 billion at a month’s notice.
In August last year, the carrier said it will raise ₹21,000 crore through a rights issue where shareholders would get one new share for every 14 shares at ₹535 each, which was at a discounted price at that time. All promoters – Mittal family and Singapore’s SingTel – that together own 56% in the carrier, had said that they would collectively subscribe to the full extent of their aggregate rights, in proportion to their holdings. Mittal family owns 24.13% while SingTel holds 31.72% and the rest is held by public.
The proceeds were to be channelled towards paying statutory dues, network expansion and 5G auctions.
Further, the tariff hikes implemented by all carriers in November 2021 would boost cashflows. According to estimates the recent tariff hikes should help Bharti deliver 20% YoY growth in consolidated revenues in FY23 - its highest in a decade. Over FY22-24, analysts expect Bharti to deliver 17% or 21% CAGR in consolidated revenue or EBITDA, assuming no further tariff hikes until quarter ending March FY24.
On the other hand, any potential increase in stake in Indus Towers funded through an equity issuance will be viewed negatively as it could potentially lead to a large dilution, analysts at Jeffries cautioned.
Airtel has invested Rs 60 billion in acquiring 20% stake in DTH business from Warburg Pincus and 5% stake in Indus Towers from Providence Partners et al.
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