First the positives. Bharti plans to list its tower business soon. This may act as a booster for the stock. End of good news.
Now the negatives. The Indian telecom space appears set to be dominated by 3-4 large national players. The sector is expected to go through consolidation (read buyouts). Add to that, news reports that Reliance may enter the voice business and you have all the ingredients of further intense competitive pricing – a scenario that may impact margins for all players. Under these circumstances, it is difficult to see how the company will be able to raise its revenue/minutes.
Second, the company’s much-touted Africa acquisition has not turned out exactly as planned. Two years after the acquisition, Africa is yet to deliver positive cash flows to the company. Low minutes of usage (MoUs) and falling margins now put the Africa turnaround story into question.
On to balance sheet issues. Net debt stands at $13 billion (Rs 71,700 crore) or three times it’s Ebitda. Bharti may go in for further refinancing this year which in turn may coincide with spectrum renewal payments.
Bharti’s cash flows are strong but it is done in by its high debt burden. Even though a section of the market argues that the stock now factors in all the concerns, Bharti’s current valuations at 27 times its earnings do not appear a bargain or even provide sufficient cushion against further negatives. Utilise the tower listing noise to sell.