Bharti Airtel goes in for big with Tata's deal; shares gain nearly 9%

Bharti Airtel saw buying sentiments from investor so much so that the stock price gained by nearly 9% on Friday. 

Such blockbuster performance came in after Bharti entered into an agreement to merge with Consumer Mobile Business (CMB) of Tata Group's two telecom businesses - Tata Teleservices Limited (TTSL) and Tata Teleservices (Maharashtra) (TTML) later on October 12. 

At 1315 hours, Airtel was trading at Rs 430.35 per piece higher by Rs 29.75 or 7.44%. With this performance, the company has now provided nearly 15% return in just one week.

Not only, Tata Teleservices shooted another upper circuit of Rs 4.86 per piece, trading up 9.95% on BSE. 

• Under the agreement, Airtel will absorb Tata CMB's operations across the country in nineteen circles - 17 under TTSL and 2 under TTML. 
• Proposed merger will  transfer of all the customers and assets of Tata CMB to Bharti Airtel, further augmenting Bharti Airtel’s overall customer base and network. 
• This deal will also support Airtel in strengthening its spectrum foot-print with the addition of 178.5 MHz spectrum (of which 71.3 MHz is liberalised) in the 850, 1800 & 2100 MHz bands. 
• Moreover, the transaction will also provide Bharti Airtel with an indefeasible right to use (IRU) for part of the existing fibre network of Tata.
• Until the completion of transaction, the Tata CMB's operations and services will continue to function as normal. 
• On completion of the deal, employees of Tata - which is CMB and EFL (Enterprise and Fixed Line and Broadband), will be demerged and post an optimal manpower planning will be moved accordingly.

Deal between these two companies is expected to be finalised within 5 - 6 weeks. 

Naveen Kulkarni analysts at Phillip Capital said, "TTLS’ acquisition is a significant value‐ accretive deal for Bharti Airtel from both perspectives – revenue‐accretion and assets."

TTLS had a revenue market share of around 6% as of Q1FY18, while Bharti Airtel held 35% market share. 

Kulkarni added, "We believe that TTLS will lose some market share (200‐250bps) until the merger concludes, which could take 9‐12 months; considering this, we believe Bharti’s gain of 350‐400 basis points market share is quite substantial."

Thus, to maintain TTLS’ revenue market share, Kulkarni believes Bharti might have to expend SG&A for one year until all subscribers and revenues are absorbed by Airtel. 

In the absence of major network expenses, the acquisition has the potential of adding Rs 2000 crire to Bharti’s FY19 EBIDTA on additional revenues of Rs 5000 crore from TTLS. The EBIDTA accretion translates to a 5.6% increase in FY19 EBIDTA.

Since the time, Mukesh Ambani's Reliance Jio has hit the markete by its various free offers - Sunil Mittal's Airtel has been facing difficulties in reporting profit in past few quarters. 

However, Phillip warned about the acquisition that it is likely to face limited regulatory hurdles from TRAI from an M&A guidelines perspective. The two major hurdles are that
spectrum caps and revenue market share (RMS) should not exceed 50% in any of the circles.

But if this acquisition takes place including deal with Telenor then, Bharti  Airtel could maintain its market leadership position even after the Idea‐Vodafone.