Home / Markets / Mark To Market /  Ahead of spectrum auctions, Airtel spends cash elsewhere

Bharti Airtel Ltd said it will buy the 20% stake it does not already own in its direct-to-home (DTH) business for a sum of 3,126 crore. About two-thirds of the consideration will be met through an issue of shares, while the rest will be paid in cash.

Just three years ago, Airtel had sold shares in its DTH venture to Warburg Pincus to increase cash levels. Evidently, the company believes it is sitting in a far more comfortable position now, as far as its balance sheet goes. Note that less than three months ago, the company had spent nearly 3,000 crore to increase its stake in Indus Towers Ltd. That decision, too, seemed intriguing at the time, raising questions on whether the company was throwing good money after bad. After all, the fragile state of Vodafone Idea Ltd does raise the prospect of significant value erosion at Indus Towers.

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In all, Airtel has given away the opportunity to increase liquidity of around 6,000 crore, which is intriguing, especially ahead of the upcoming spectrum auctions. “Bharti has invested 6,000 crore in the past three months which could have been used to acquire 9,000-12,000 crore worth of spectrum in the upcoming auctions or to make investments in the digital space. This raises questions around its strategic intent," analysts at Jefferies India Pvt. Ltd said in a note to clients.

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“With high net debt, we would prefer to see more signs of deleveraging as it could help rerate valuations," analysts at Motilal Oswal Financial Services said in a note to clients. Of course, as news reports suggest, Airtel’s earnest money deposit for the upcoming auctions isn’t very high, and suggest its bidding will be at relatively low levels. But surely it needs all the arsenal possible for 5G auctions later, and the continued cut-throat competition with Jio Platforms Ltd.

Airtel’s net debt (including lease obligations) has risen from 1.2 trillion in December 2019 to 1.47 trillion at the end of 2020. But with profits rising post tariff hikes, net debt to Ebitda has improved to 3 times, from 3.4 times a year ago. Perhaps, rising profits and cash flows is behind Airtel’s confidence. And the 6,000 crore spent on recent acquisitions seems like a drop in the ocean against the mammoth debt. Even so, given cash balances of around 10,000 crore, the liquidity foregone is not insignificant.

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