Zain deal to enhance Bharti share on long term: Experts

Investors in Bharti Airtel can cheer as the $10.7-billion takeover of Zain Telecom's African assets would increase its profitability on a long term basis, analysts have said.

"The Africa market has high growth potential for Bharti as the region is currently under-penetrated. The average revenue per user of Zain is quite high and that justifies its current valuation by Bharti," Angel Broking Research Analyst (Telecom) Rahul Jain said.

Bharti is set to sign a $10.7-billion deal to acquire African operations of Kuwaiti firm Zain, which today announced that "definitive agreements" would be signed soon.

"Although the deal can dilute Bharti's short-term profitability, in the long term it would be value accretive for the domestic firm. The combined entity would enhance shareholder value in the long term," Sharekhan Telcom Analyst Sangeeta Tripathi said.

Echoing similar views, KPMG Head of Telecom Romal Shetty said: "If Bharti can attain operational synergies with Zain, it can go for more such acquisitions in the coming days as the Indian market is gradually getting saturated."

Shares of Airtel jumped over 3 per cent to Rs 317 on the BSE after Zain board said that pacts would be signed soon.

Bharti shares have surged 11 per cent since February 15, when both the companies entered into an exclusive discussion for a possible takeover.

The deal, if goes through, would be the second largest overseas acquisition by an Indian company, after Tata's bought out AngloDutch Steel maker Corus for over $13 billion.

"It is quite a possibility that the said deal would make other domestic telecom firms venture out for such acquisitions which would add to their profitability," Jain said.

With the buyout, Airtel will enter the world's fastest growing market in Africa. The two businesses combined will be among the top 10 telecom firms in the world with an over 165-million subscriber base and total revenue of $13 million.

Shetty noted that in the long term more domestic firms can scout abroad for buyouts. "Consolidation in the domestic space is likely to happen in the next 2-3 years time," he added.

Analysts said that the current lot of 12 mobile operators and telecommunication firms in India are focusing on either increasing the minute usage or going for inorganic growth.

"The biggest challenge before Bharti is how it integrates its operation with Zain and the time taken. The acquisition would extend Bharti's presence across geographies," Jain said.

However, Sharekhan's Tripathi expects that the deal would bring in consolidation in the highly competitive sector as smaller companies might see merging with foreign companies and launching operation.