Indian Telecom:Bharti gets to pole position in the consolidation race

Bharti buys Tata’s mobile business, sector consolidation largely over now.

    Bharti will take over the customers and assets including spectrum of TataTeleservices’ consumer mobile business in a debt-free/cash-free deal. Bhartiwould partially assume Tata’s deferred spectrum liability of around Rs 75bnand some Tata employees post an optimization exercise. The deal will addaround 35.4m active subs and 5% rev-share to Bharti (current 271.5mn subs,32.5% rev-share) and bolsters Bharti spectrum portfolio. Coupled with itsrecent acquisition of Telenor India (2.5%), Bharti is likely to reach a rev-share of39-40% and possess a market-leading spectrum portfolio. Our target price isDCF-based. At the current price, Bharti’s India business trades at 6.5xassuming 5x FY19E EV/EBITDA for Africa operations.

    Don’t miss the forest for the trees, Reiterate Bharti as BUY (TP Rs 480).

    At end-1QFY18, we estimate the mobile rev-shares of other operators as:Vodafone India (22.5%), Idea (20%), RCOM (4%), Aircel (5%), Jio (2.5%) andBSNL/MTNL (5%). We reiterate our central thesis on Bharti