Home / Markets / Mark To Market /  Merger with Indus or not, outlook remains weak for Bharti Infratel

Bharti Infratel Ltd’s decision to extend the long stop date of its proposed merger with Indus Towers Ltd again does not come as a surprise. The stock gained 0.4% against a 0.7% decline in the Nifty on Thursday.

In fact, the management commentary is leading to the belief that the merger may be called off eventually. Bharti Infratel has said the merger is contingent upon receipt of regulatory approvals and there can be no assurance that the merger can be completed in the extended time-frame.

Graphic by Sarvesh Kumar Sharma/Mint
View Full Image
Graphic by Sarvesh Kumar Sharma/Mint

“Considering it has been challenging to secure merger-related permissions over the past 18-20 months, we believe Bharti Infratel could call off the merger," analysts at Edelweiss Securities Ltd said in a note.

The impact will be felt by key shareholders of both companies—Bharti Airtel Ltd and Vodafone Idea Ltd. More so by Vodafone Idea, as the company is banking upon selling its stake in the combined entity to raise funds for its India mobile services business.

For Bharti Infratel, which also holds a stake in Indus Towers, the opportunity to enhance its financial returns through better management of taxes as a combined entity (however meagre these benefits maybe) will be lost.

Importantly, the merger would have created a large telecom tower firm, which would have made it easier to raise fresh funds or sell stakes to new investors, said an analyst at a domestic broking firm, requesting anonymity. Of course, given the state of the Indian telecom industry, investors are broadly shying away from the sector. The Bharti Infratel stock has been a laggard, losing about 30% of its value in the past two years.

The concerns are not unfounded. Exit of small telecom companies from the Indian market and consolidation of Vodafone India with Idea Cellular Ltd has significantly impacted Bharti Infratel’s tenancies. Total co-locations, or the total antennas deployed by telecom service providers, dropped 21% between September 2017 and September 2019. Agreed, the company’s recent quarterly results show signs of stabilization, but analysts do not expect an immediate revival.

Cash-strapped Vodafone Idea, a large customer, is not in a situation to aggressively incur network investments. Of late, Vodafone Idea’s focus is optimizing investments in key revenue-generating regions, instead of blanket network upgrade.

The company is losing subscribers, and the continuous pressure on operating earnings make it tough for a substantial expansion in tenancies in the near-term.

“Even as the recent developments in the wireless sector increase the likelihood of a three-player market structure sustaining, Vodafone Idea getting back into a meaningful network expansion phase would need a lot more. Reliance Jio and Bharti Airtel have both indicated that they are past their peak 4G capex phase," analysts at Kotak Institutional Equities Research said in a note.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout