Merger to give Airtel more subscribers, Tata Tele an easy exit: Analysts

By running the show, Tata Teleservices would have continued to bleed on the financial front. The deal will ensure further losses are arrested, they say

Analysts have given a thumbs-up to the Tata Teleservices – Bharti Airtel deal, as they feel the move provides an exit route to the already bleeding Tata-owned company. As on March 31, 2017, the combined debt of Tata Teleservices Limited (TTSL) and Tata Teleservices Maharashtra Limited (TTML) stood at Rs 34,089 crore, excluding deferred payment liabilities to the government for spectrum, according to a CRISIL report.

“The development is positive – both for Bharti Airtel and Tata Teleservices. By running the show, Tata Teleservices would have continued to bleed on the financial front. The deal will ensure further losses are arrested. On the other hand, Bharti Airtel stands to gain subscribers,” said A K Prabhakar, head of research, IDBI Capital.

The telecom industry is undergoing a consolidation and there will be only a handful of players, such as Bharti Airtel, Vodafone and Reliance Jio (RJio) from the private segment and MTNL, BSNL from the public sector space, left at the end of the process that will operate on a pan India basis, analysts say.

“We expected consolidation to happen in the sector and that’s exactly what’s happening. This might continue going ahead as well, as we still have one weakling existing in the telecom services provider in the form of Reliance Communications (RCom). Tata Tele was the other one. That said, it remains to be seen how the merger evolves going ahead for Bharti Airtel in terms of business strategy,” says Gaurang Shah, Head Investment Strategist at Geojit Financial Services.

On Thursday, TTSL gained 10% on the National Stock Exchange (NSE) at Rs 4.4. Over the past week, the shares have been on a downward spiral after reports suggested that the company is likely to shut down its operations this month. It had hit a 52-week low of Rs 3.7 on October 11. Bharti Airtel on the other hand, closed 1% lower at Rs 399 levels on the NSE.

Going ahead, Prabhakar expects the overall profitability for the sector will also improve over the long run given the consolidation. “That said, the merger will be a long drawn process where their tower business will be separated and then the wireless business will get merged into Bharti Airtel,” he says. 

Till the time we have pricing / tariff war in the telecom sector, Shah of Geojit says, investors should not be excited as far as the earnings are concerned. 

“We have a reduce recommendation on Bharti Airtel; on Idea we have a buy call depending on what valuation emerges for the merger with Vodafone; we are also positive on Reliance Industries (RIL) that controls Reliance Jio (RJio),” he says.