Shares in Bharti Airtel jumped 1.5 per cent Rs 325 at Friday’s opening after reports in the local media that the fast-growing Indian telecoms group is considering selling off up to 25 per cent of its satellite business.
The share price then fell back to Rs322.95 by 3pm in Mumbai, a 0.9 per cent gain over the day, as the company declined to confirm whether a deal is on the cards.
The rumoured sale would value Bharti’s direct-to-home (DTH) business, at just over $1bn. One story in the Indian Express said:
United States-based Liberty Global Inc and a couple of private equity investors are among companies Bharti Airtel is in talks with for a potential stake sale, said [a] source, declining to elaborate.
Bharti Airtel’s DTH business has 7.9 mn customers across 632 districts, according to a company presentation this February. And in the three months ending in December, the unit made earnings before interest, taxation, depreciation and amortisation of Rs147m on Rs4.3m of revenues.
The company hasn’t confirmed the deal, telling the FT it made “no comments on speculations”. But if the rumours are true, analysts say the move isn’t a reflection of Bharti’s outlook for the DTH sector.
“It is a market that is fairly nascent compared to the cable market”, Kamlesh Bhatia, research director at Gartner told beyondbrics. “The DTH market continues to grow as laying cable is expensive in certain markets, so DTH is the viable alternative.”
He continued: “This isn’t a statement of their own belief around the future of the business. The telecoms industry is evolving to grow outside traditional services. It is increasingly linking to entertainment and DTH is part of that strategy of providing entertainment to the consumer.”
A report from Research and Markets underlines the potential for growth in the sector. It forecasts that the number of DTH subscribers in India will grow at a compound annual growth rate of 23 per cent between 2011 and 2014 to reach 69m. But the market research company adds in its report:
The entry of new players in the Indian DTH industry is intensifying competition. Due to this intensified competition, installation prices are declining and subscribers now have a wide range of options.
This leads to the reason why Bharti may want to pull back from its DTH unit. The company is moving away from businesses in which it doesn’t have leadership positions to free up capital to service its debts – it reported net debts of $11.7bn for the quarter ended in December.
“There is a need to bring down that debt, which is creating a sizeable outflow in terms of trying to service that debt”, Bhatia said.
Other recent reports say that the company is looking to sell a stake in Comviva, its mobile software development unit, to Mahindra Satyam and/or hive off its Sri Lankan operations. But, with Bharti Airtel declining to comment on Friday, there is nothing concrete to relate.