 "Bharti Airtel: Lower debt, core operations focus positives")
With the sale of 4,800 towers in Nigeria to American Tower Corp for $1.05 billion (Rs 6,460 crore), Bharti Airtel will be able to cut its $10 billion debt (net debt at Rs 62,215 crore at the of the September quarter) 10 per cent.
The deal will help Bharti save interest costs adding six per cent to the profit before tax, according to Harit Shah of Karvy Stock Broking. Interest costs are expected to come down to about Rs 3,300 crore from Rs 3,660 crore in FY14, assuming that the proceeds are fully used to retire debt. Also, there will be a reduction in cost to operate these towers. On the other hand, the outgo on lease rentals will increase, as Bharti Airtel is an anchor tenant on the Nigerian towers for a 10-year period. From 22 per cent of its Africa revenues of $3.73 billion, network operating costs are expected to go up to 26 per cent. Thus, it will partly offset the savings in interest costs and future capex. Earlier, IIFL had calculated that tower deals will be cash flow accretive to the tune of $100 million annually, given $320 million of annual tower Capex savings which is expected to offset higher rental expenses.
While the transaction will help save on interest costs, cut expenditure and strengthen the balance sheet, it is imperative for the company to improve its operating performance in Africa. For the first half of the current calendar year, the company has lost to competition on the revenue growth and profits front. While operating profits for competition grew over 5.6 per cent, Bharti Airtel’s saw its Ebitda (earnings before interest, taxes, depreciation, and amortisation) fall 4.8 per cent during this period, according to IIFL.
Prior to this transaction and in the last six months, the company had sold 6,600 of its Africa-based towers to Eaton Towers and Helios Towers for a reported $1.4 billion (Rs 8,400 crore). Given Nigeria is the biggest market for telephony services, the towers in the geography went for a six per cent premium (at Rs 1.35 crore each) compared to other towers in Bharti Africa’s 15,000 tower portfolio. With this sale, the company is left with 3,600 towers.
Analysts estimate that the entire 1 15,000 tower portfolio will fetch about $3 billion (Rs 18,000 crore) and the company is on course with the towers so far bringing in about Rs 14,900 crore.
The deal will help Bharti save interest costs adding six per cent to the profit before tax, according to Harit Shah of Karvy Stock Broking. Interest costs are expected to come down to about Rs 3,300 crore from Rs 3,660 crore in FY14, assuming that the proceeds are fully used to retire debt. Also, there will be a reduction in cost to operate these towers. On the other hand, the outgo on lease rentals will increase, as Bharti Airtel is an anchor tenant on the Nigerian towers for a 10-year period. From 22 per cent of its Africa revenues of $3.73 billion, network operating costs are expected to go up to 26 per cent. Thus, it will partly offset the savings in interest costs and future capex. Earlier, IIFL had calculated that tower deals will be cash flow accretive to the tune of $100 million annually, given $320 million of annual tower Capex savings which is expected to offset higher rental expenses.
While the transaction will help save on interest costs, cut expenditure and strengthen the balance sheet, it is imperative for the company to improve its operating performance in Africa. For the first half of the current calendar year, the company has lost to competition on the revenue growth and profits front. While operating profits for competition grew over 5.6 per cent, Bharti Airtel’s saw its Ebitda (earnings before interest, taxes, depreciation, and amortisation) fall 4.8 per cent during this period, according to IIFL.
Prior to this transaction and in the last six months, the company had sold 6,600 of its Africa-based towers to Eaton Towers and Helios Towers for a reported $1.4 billion (Rs 8,400 crore). Given Nigeria is the biggest market for telephony services, the towers in the geography went for a six per cent premium (at Rs 1.35 crore each) compared to other towers in Bharti Africa’s 15,000 tower portfolio. With this sale, the company is left with 3,600 towers.
Analysts estimate that the entire 1 15,000 tower portfolio will fetch about $3 billion (Rs 18,000 crore) and the company is on course with the towers so far bringing in about Rs 14,900 crore.
While the uptick in voice tariffs and strong data growth in India are positive and if sustained can drive the company's performance going ahead, the key trigger for Bharti Airtel as well other listed players such as Idea is the spectrum auction. India accounts for 70% of Bharti Airtel's revenues and all its profits and any spectrum shortage or aggressive bidding will mean higher capital outgo as well as debt.