Bharti Airtel restructures biz with focus on digital opportunities; is value unlocking on cards?

Telecom major Bharti Airtel on Wednesday announced a new corporate structure with an eye on digital opportunities ahead.
(Image: REUTERS_

Telecom major Bharti Airtel on Wednesday announced a new corporate structure with an eye on digital opportunities ahead. Under the new structure, the digital and infrastructure assets of Bharti Airtel will be merged into the parent entity, while the telecom business will be pushed down to a wholly-owned subsidiary. Bhati Airtel has said that it aims to unlock value for shareholders through the move and investors are watching how the new structure will help the company grow its digital assets and pave way for possible future monetisation.

Massive opportunity in digital business

“Digital business is growing very fast, and the market opportunity is rising multi-fold,” ICICI Securities said in a note. The brokerage firm highlighted that the new structure indicates that Bharti Airtel will not be monetising its assets just yet, which it says is a positive. “Bharti had digital assets sitting in multiple entities and thus, it was missing a united push and an opportunity to cross sell services. A separate digital entity is expected to bring focus to business and united efforts are intended at sharping the execution,” they added.

Rejig to help with regulatory levies

Analysts were quick to point out that with the rejig, the structure is similar to that of Jio Platforms. Indian telecom services including mobile broadband business will be placed in Airtel Ltd, which will be the wholly-owned subsidiary of the parent firm Bharti Airtel. Using this structure, Bharti Airtel will push down operations that attract license fee and other regulatory levies. “This will reduce payment of statutory levies, licensing fees and spectrum usage charges, pertaining only to connectivity business revenues,” said Kotak Securities. On the other hand, ICICI Securities said that this will make the company AGR-tax efficient. 

Analysts at Kotak said that it would be difficult to estimate the break-up and likely benefit of putting aside the telecom business, but added that a 10-15% shift in revenues can boost India wireless EBITDA by about 3-4% in the current financial year. 

The shift looks positive prima-facie, but analysts at JM Financial await more traction. JM Financial added that do not currently value Bharti’s Digital assets, due to the nascent stage of the business, nonetheless, Bharti continues to remain their top pick owing to its industry leadership in subscriber quality, ability to manage capex in the next 5G cycle, and continued strong execution in other business segments.

Bharti Airtel remain a top pick

ICICI Securities has a ‘Buy’ call on Bharti Airtel with a target price of Rs 723 per share. Kotak Securities too has a ‘Buy’ call on the company with a fair value of Rs 710 apiece. “We have modestly increased EBITDA estimates, but reduced EPS estimates aligning our model for the recent developments,” analysts at Kotak Securities said. JM Financial has a target price of Rs 700 per share on the stock.