Deal to generate opex, capex synergies for Bharti: BAML

The Bharti-Tata deal is a positive development for the Sunil Mittal company, strengthening its position in the telecom industry, Bank of America Merril Lynch said on Thursday.

“We see the merger generating opex and capex synergies for Bharti, and fits in well with its strategy of acquiring spectrum from smaller players, as they have done in recent past in transactions with Telenor, Aircel, Qualcomm, Videocon and Augere wireless. We believe, the transaction will contribute to positive Ebitda within a few quarters of completion,” the broking house said in a note.

Tata’s Consumer Mobile Business has a total of 42 million subscribers, with average revenue per user (ARPU) of Rs 125 and operating profit (Ebitda) margins of 22.5 per cent, as per FY16 figures.

Bharti is not paying any cash or debt, but will take over a small portion of the outstanding spectrum liability (OSL) to be paid to the government. Bharti will be acquiring Tata’s entire spectrum (178.5 MHz), of which 71.3MHz is liberalised, but may choose to surrender part of the unliberalised (administered) spectrum to the government as per their needs, the note said.

“As per our calculations, the total OSL owed by the Tatas’ to the government is Rs 10,000 crore ($1.5 billion). While Bharti has not quantified the specific amount of liabilities that it will assume, as per industry sources, Bharti will be assuming $230- 450 million of OSL.

“Additionally, Bharti will be taking over any penalties arising out of Tatas’ potentially breaking any tower tenancy contracts with Bharti Infratel and Indus Towers,” the report said.