Bharti Airtel- Warburg Pincus deal impact

Bharti Airtel- Warburg Pincus deal impact

Last updated: 18 Feb, 2021 | 12:02 pm

Bharti Airtel- Warburg Pincus deal impact

Details of the deal

  • Bharti Airtel has announced that it will acquire a 20% equity stake in its DTH arm Bharti Telemedia for Rs 3,126 crore from an affiliate of Warburg Pincus. As part of the consideration, Bharti Airtel will issue 3.7 crore shares at Rs 600 each, and will pay cash of Rs 938-1,038 crore based on book closing adjustments as of March 31, 2021.
  • Notably, Bharti Airtel had sold this 20% stake to Warburg Pincus for Rs 2,260 crore in 2017. The transaction will give the parent full control of the DTH unit. The deal values Bharti Telemedia at Rs 15,630 crore.

Why is the deal being done?

  • Bharti Airtel said that DTH is an integral part of its home strategy and this transaction is another step towards simplifying the shareholding of its customer-facing businesses.
  • The company has also formed a committee to reorganise the company structure with a sharper focus on digital & non-telecom businesses to enable value unlocking for shareholders.

Impact on Bharti Airtel's business

  • As shown in the above table, the Digital TV Services/ DTH segment contributes to about 4-6% of Bharti Airtel's revenues and EBITDA ( in the latest quarter). According to UBS, the deal would give Bharti Airtel better control over content distribution across wireless, fixed broadband and DTH segments, and provide more flexibility in setting bundled prices.
  • Bharti Airtel's DTH services segment has posted a robust growth in the last few years. The DTH business has clocked a healthy 18% Ebitda CAGR over FY17-20 to Rs 2,000 crore ( in FY20) and is well placed in an industry.
  • The DTH subscribers have grown from 1.4 crore in FY17 to around 1.8 crore in FY20.  ARPU (Average Revenue Per User) growth and Ebitda improvement (2 times over FY16-20) track record has been better than mobile, considering the lower competitive intensity. Going forward, the company is upbeat on the prospects of the DTH business, given the low penetration of the DTH industry.
  • Overall, while the deal seems to be positive for the company, given the small scale of the DTH business, the deal is expected to have only a minor impact on the company's operations. According to Credit Suisse, the market will look for additional details of the group reorganisation for value unlocking over the medium term.