We reiterate our overweight rating on Bharti Airtel and assign a DCF-based target price of Rs 362 a share. Bharti announced the acquisition of Loop Mobile (which operates only in Mumbai) for a consideration of $110 million.
With this acquisition Bharti Airtel?s active subscriber market share in Mumbai will increase from 16% to 20% and revenue market share (RMS) will improve from 21% to 26%. (Vodafone, the market leader, has the highest RMS of 36%).
Loop Mobile has 3.1 million total subscribers, 1.4 million active subscribers, annualized revenue of $94 million, implied active subs ARPU of R350 (30% lower than Bharti Airtel / Vodafone Mumbai ARPU) and 400 tower assets. Valuing the tower assets at book, we estimate the operations have been acquired for an adjusted EV of $97 million. If we assume the operations generate an ebitda margin of 10% (given that Loop Mobile operates in the 900 MHz band), this implies the operations were acquired for an adjusted EV/ebitda of 10x, which would appear pricey on an absolute basis.
If Bharti Airtel were to retain 40% of the Loop Mobile cell sites in Mumbai, it could generate $20 million of network cost savings. Along with potential employee and distribution synergies, total cost savings could amount to $25 million.
HSBC
