Airtel Raises $1.25bn In Equity Issuance For Africa Business
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Six global institutional investors including Warburg Pincus, Temasek, Singtel, and SoftBank Group International have agreed to invest $1.25bn in Airtel Africa through a primary equity issuance. The deal gives Airtel Africa a post-money equity value of $4.4bn. As per the structure of the deal, Bharti Airtel has not sold any equity stake in Airtel Africa. As per the company’s press release, the proceeds of the issuance would be used to deleverage Airtel Africa whose current debt stands at ~$5bn. The company is also planning an IPO of Airtel Africa. The proceeds of the IPO would be used to further deleveraging the company. Airtel Africa has been a bright spot for Bharti Airtel over the past few quarters. While the domestic tower and wireless business have seen shrinking revenues, the Africa segment has seen improvement with a sharp rise in subscribers (up 2.2% qoq and 13.9% yoy) and constant currency revenue (up 14% yoy) as of Q1FY19. The company has also rolled out 4G services in 9 countries, with rollouts in most other countries pending. Data usage per customer for Airtel Africa rose 19.3% yoy in Q1FY19, with the percentage of data users jumping to 28.9% (from 23.6% in Q1FY18). Thus, while this development would not directly impact the troubled domestic businesses of Bharti Airtel, the equity sale in Airtel Africa and the subsequent IPO would help in eventually unlocking value for shareholders. Bharti Airtel is likely to see a revenue CAGR of 5.9% due to (1) subscriber growth offsetting reduction in ARPU, and (2) strong growth in its Africa business over FY18–20E. The EBITDA margin is expected to rise by 50bps over FY18–20E owing to improved profitability of Airtel Africa. We expect Bharti Airtel to report a PAT CAGR of 11.6% over FY18–20E. The stock is currently trading at 5.9x FY20E EV/EBITDA. Bharti Airtel is a wireless operator with the largest market share among domestic mobile service providers. At the end of Q1FY19, Bharti Airtel had an overseas subscriber base of 9.3cr users (up 13.9% yoy). The Indian subscriber base stood at 34.5cr users at the end of July 2018. The company also reported a Direct-To-Home (DTH) user base of 1.46cr users (10% yoy) at the end of Q1FY19.
Domestic ARPU fell 8.8% qoq to Rs105 per user. The growth in subscriber base and sharp fall in ARPU in Q1FY19 can largely be attributed to the merging of Telenor with Bharti’s domestic telecom business. Moreover, Bharti Airtel Africa has become a major telecom player in Africa. Airtel Africa is in the top two in 12 out of its 14 African markets.
Originally published at ways2capital-review.blogspot.com on October 24, 2018.