Bharti-Zain Deal Analysis The Bharti Zain deal is old news now. A quick look at the Zain September 2009 data –nine months of the year only–gives us a view of what Bharti is buying. As you might notice, Nigeria is the bull in the room. It‟s still not profitable with a loss of $88m on revenues of $986m, a nd accounts for 1/3rd of Zain Africa‟s revenues. (Zain does not classify Sudan or Morocco as “Africa”, and is not selling those to Bharti) Yet, Nigeria has hope; Zain has only 25% market share, and the market penetration is just 45% –scope to grow. Average Revenue Per User (ARPU) in Africa ranges from $3 to $10, with Nigeria at $7. This compares favourably with India where Airtel‟s ARPU is $5 (Rs. 230). Powered by TableauIf you can‟t see the abov e graphic(s), a snapshot image is below (Click for a larger picture): Thestory from Mintis that Bharti is looking to finance the Zain deal from a $7 billion USD loan –remaining $2bn will be from Indian rupee loans - at a rate of 300 bps (3.00%) over LIBOR. This is suspect –they were offering to pay 320 po ints for the smaller $3 bn loan for MTN last year; still, LIBOR is at an all time low of about 0.88%.
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The Bharti Zain deal is old news now A quick look at the Zain September 2009 data ndash ninemonths of the year only ndash gives us a view of what Bharti is buying
As you might notice Nigeria is the bull in the room It‟s still not profitable with a loss of $88mon revenues of $986m and accounts for 13rd of Zain Africa‟s revenues (Zain does not classify
Sudan or Morocco as ldquoAfricardquo and is not selling those to Bharti)
Yet Nigeria has hope Zain has only 25 market share and the market penetration is just 45 ndash scope to grow Average Revenue Per User (ARPU) in Africa ranges from $3 to $10 with Nigeriaat $7 This compares favourably with India where Airtel‟s ARPU is $5 (Rs 230)
Powered by Tableau
If you can‟t see the above graphic(s) a snapshot image is below (Click for a larger picture)
The story from Mint is that Bharti is looking to finance the Zain deal from a $7 billion USD loan ndash remaining $2bn will be from Indian rupee loans - at a rate of 300 bps (300) over LIBORThis is suspect ndash they were offering to pay 320 points for the smaller $3 bn loan for MTN lastyear still LIBOR is at an all time low of about 088
The 10 year average of LIBOR is 375 and we shouldn‟t expect these low LIBOR rates to lasttoo long At even 2 of LIBOR and a 300 bps premium and 8 for the Indian bit Bharti will
pay $500m per year in interest
That means they have to improve EBIDTA by $500m just to pay for the deal currently EBIDTAis $13bn so it‟s got to scale by 40 for Bharti to get a chunk They can definitely improve somebits ndash tower costs in Africa have been 4x more than India which can be lowered and internalefficiencies can be improved The local mafia in Africa will be tougher to handle (they take thelucrative deals and back- peddle commissions) where in India Mittal‟s political connectionswould have helped in the early stages
I‟m not taking a short term call on this stock If anything each person is supposed to make hisown decisions and I‟ll see what the market price has to say If this deal is immensely profitable
Bharti should hit new highs if it‟s not and Africa is a laggard the prices won‟t move It isn‟t ashort right now but it isn‟t a buy either They‟re overpaying for the deal but money is cheapnowadays and ldquoexpensiverdquo is more affordable than you think It‟s a definite sign of desperation but I wouldn‟t write off a juggernaut like Bharti just yet
Founded in 1976 by Sunil Bharti Mittal Bharti has grown from being a manufacturer of bicycleparts to one of the largest and most respected business groups in India With its entrepreneurialspirit and passion to undertake business projects that are transformational in nature Bharti has
created world-class businesses in telecom financial services retail and foods
Bharti started its telecom services business by launching mobile services in Delhi (India) in1995 Since then there has been no looking back and Bharti Airtel the group‟s flagshipcompany has emerged as one of top telecom companies in the world and is amongst the top fivewireless operators in the world
Through its global telecom operations Bharti group operates under the bdquoAirtel‟ brand in 19countries across Asia and Africa ndash India Sri Lanka Bangladesh Seychelles Burkina Faso ChadCongo Brazzaville Democratic Republic of Congo Gabon Ghana Kenya MadagascarMalawi Niger Nigeria Sierra Leone Tanzania Uganda and Zambia In addition the group
also has mobile operations in Jersey Guernsey
Over the past few years the group has diversified into emerging business areas in the fastexpanding Indian economy With a vision to build India‟s finest conglomerate by 2020 the grouphas forayed into the retail sector by opening retail stores in multiple formats ndash small and medium- as well establishing large scale cash amp carry stores to serve institutional customers and otherretailers The group offers a complete portfolio of financial services ndash life insurance generalinsurance and asset management ndash to customers across India Bharti also serves customersthrough its fresh and processed foods business The group has growing interests in other areassuch as telecom software real estate training and capacity building and distribution of telecomIT products
What sets Bharti apart from the rest is its ability to forge strong partnerships Over the yearssome of biggest names in international business have partnered Bharti Currently Singtel IBMEricsson Nokia Siemens and Alcatel-Lucent are key partners in telecom Walmart is Bharti‟spartner for its cash amp carry venture Axa Group is the partner for the financial service businessand Del Monte Pacific for the processed foods division
Bharti strongly believes in giving back to the society and through its philanthropic arm the BhartiFoundation it is reaching out to over 30000 underprivileged children and youth in India
The 10 year average of LIBOR is 375 and we shouldn‟t expect these low LIBOR rates to lasttoo long At even 2 of LIBOR and a 300 bps premium and 8 for the Indian bit Bharti will
pay $500m per year in interest
That means they have to improve EBIDTA by $500m just to pay for the deal currently EBIDTAis $13bn so it‟s got to scale by 40 for Bharti to get a chunk They can definitely improve somebits ndash tower costs in Africa have been 4x more than India which can be lowered and internalefficiencies can be improved The local mafia in Africa will be tougher to handle (they take thelucrative deals and back- peddle commissions) where in India Mittal‟s political connectionswould have helped in the early stages
I‟m not taking a short term call on this stock If anything each person is supposed to make hisown decisions and I‟ll see what the market price has to say If this deal is immensely profitable
Bharti should hit new highs if it‟s not and Africa is a laggard the prices won‟t move It isn‟t ashort right now but it isn‟t a buy either They‟re overpaying for the deal but money is cheapnowadays and ldquoexpensiverdquo is more affordable than you think It‟s a definite sign of desperation but I wouldn‟t write off a juggernaut like Bharti just yet
Founded in 1976 by Sunil Bharti Mittal Bharti has grown from being a manufacturer of bicycleparts to one of the largest and most respected business groups in India With its entrepreneurialspirit and passion to undertake business projects that are transformational in nature Bharti has
created world-class businesses in telecom financial services retail and foods
Bharti started its telecom services business by launching mobile services in Delhi (India) in1995 Since then there has been no looking back and Bharti Airtel the group‟s flagshipcompany has emerged as one of top telecom companies in the world and is amongst the top fivewireless operators in the world
Through its global telecom operations Bharti group operates under the bdquoAirtel‟ brand in 19countries across Asia and Africa ndash India Sri Lanka Bangladesh Seychelles Burkina Faso ChadCongo Brazzaville Democratic Republic of Congo Gabon Ghana Kenya MadagascarMalawi Niger Nigeria Sierra Leone Tanzania Uganda and Zambia In addition the group
also has mobile operations in Jersey Guernsey
Over the past few years the group has diversified into emerging business areas in the fastexpanding Indian economy With a vision to build India‟s finest conglomerate by 2020 the grouphas forayed into the retail sector by opening retail stores in multiple formats ndash small and medium- as well establishing large scale cash amp carry stores to serve institutional customers and otherretailers The group offers a complete portfolio of financial services ndash life insurance generalinsurance and asset management ndash to customers across India Bharti also serves customersthrough its fresh and processed foods business The group has growing interests in other areassuch as telecom software real estate training and capacity building and distribution of telecomIT products
What sets Bharti apart from the rest is its ability to forge strong partnerships Over the yearssome of biggest names in international business have partnered Bharti Currently Singtel IBMEricsson Nokia Siemens and Alcatel-Lucent are key partners in telecom Walmart is Bharti‟spartner for its cash amp carry venture Axa Group is the partner for the financial service businessand Del Monte Pacific for the processed foods division
Bharti strongly believes in giving back to the society and through its philanthropic arm the BhartiFoundation it is reaching out to over 30000 underprivileged children and youth in India
Founded in 1976 by Sunil Bharti Mittal Bharti has grown from being a manufacturer of bicycleparts to one of the largest and most respected business groups in India With its entrepreneurialspirit and passion to undertake business projects that are transformational in nature Bharti has
created world-class businesses in telecom financial services retail and foods
Bharti started its telecom services business by launching mobile services in Delhi (India) in1995 Since then there has been no looking back and Bharti Airtel the group‟s flagshipcompany has emerged as one of top telecom companies in the world and is amongst the top fivewireless operators in the world
Through its global telecom operations Bharti group operates under the bdquoAirtel‟ brand in 19countries across Asia and Africa ndash India Sri Lanka Bangladesh Seychelles Burkina Faso ChadCongo Brazzaville Democratic Republic of Congo Gabon Ghana Kenya MadagascarMalawi Niger Nigeria Sierra Leone Tanzania Uganda and Zambia In addition the group
also has mobile operations in Jersey Guernsey
Over the past few years the group has diversified into emerging business areas in the fastexpanding Indian economy With a vision to build India‟s finest conglomerate by 2020 the grouphas forayed into the retail sector by opening retail stores in multiple formats ndash small and medium- as well establishing large scale cash amp carry stores to serve institutional customers and otherretailers The group offers a complete portfolio of financial services ndash life insurance generalinsurance and asset management ndash to customers across India Bharti also serves customersthrough its fresh and processed foods business The group has growing interests in other areassuch as telecom software real estate training and capacity building and distribution of telecomIT products
What sets Bharti apart from the rest is its ability to forge strong partnerships Over the yearssome of biggest names in international business have partnered Bharti Currently Singtel IBMEricsson Nokia Siemens and Alcatel-Lucent are key partners in telecom Walmart is Bharti‟spartner for its cash amp carry venture Axa Group is the partner for the financial service businessand Del Monte Pacific for the processed foods division
Bharti strongly believes in giving back to the society and through its philanthropic arm the BhartiFoundation it is reaching out to over 30000 underprivileged children and youth in India