May be it’s only me, but looks like Bharti Airtel is hell bent on chasing Fool’s Gold. Bharti has been chasing inorganic growth at a maddening pace primarily to expand globally. One of the top most telecom operators in India, Airtel enjoys a huge subscriber base in India and wants to penetrate the international markets in a bid to replicate its success in India.
The first indications came from the dicey Bharti-MTN deal which eventually never materialized after multiple rounds of discussion. The deal buzz went on for quite sometime but the S.African government seemingly did not like the terms of the deal. Given the interest shown by Bharti Airtel, the indications were clear that Bharti wants a piece of one of the most developed telecom networks of the world –S.Africa.
However, that was a short term loss for an acquisition hungry and the hunt was on. Recently, Bharti did manage to pick up stake in Warid Telecom for around $300 million.This deal will pave way for Bharti’s entry into India’s neighbouring country-Bangladesh.With a potentially growing telecom market in Bangladesh and a 70% majority stake, the deal value looks fair to say the least.
However, Bharti Airtel seems to have overdone its acquisition strategy big time too soon. It had not even been a few months for the Warid Deal and Bharti went ahead and announced its plans to acquire Zain’s (A Telecom Company From Kuwait) African assets for a whopping $10.7 billion.
Zain evidently has a substantial presence, with over 70 million subscribers in the African Markets and Bharti was eager to enter S.Africa in one way or the another. However, a little storm seems to be brewing up as far as the Stock Market performance of Bharti Airtel is concerned. Ever since, Zain issued a press statement showing its interest in accepting Bharti’s offer , the shares of Bharti have tumbled like nine pins in today’s trading session. Bharti Airtel shares have fallen 9% in today’s trade. The markets did end flat but Bharti was in RED from the word go. From an almost 4-5% in the very first 2 hours of the trade, the traders seem to be offloading Bharti shares like there is no tomorrow.
Now, given that the telecom market in India has become highly competitive and price wars and Mobile Number Portability are definitely hurting the operators, but does that mean losing the focus on the home turf and eyeing new geographies. Expansion is generally a good de-risking ploy but i am just a little sceptical given that Bharti is trying to do too many things in too small a duration.
Moreover, BOA-Merrill Lynch have listed their reasons for downgrading the Bharti Stock from Buy to Underperform on two reasons primarily,
- Rich valuation of the potential deal
- Unexciting growth outlook for Zain’s African portfolio
Even if the current deal might be of critical long term value , it is difficult to get the point across the investors when Bharti keeps on making acquisition news every now and then.For investors, it only comes across as a serious strain on Bharti’s Balance Sheet. More so, when the market confidence is not really positive, moves like these can backfire and it sure have backfired in Bharti’s case today.
As an investor I would rather see Bharti concentrating on the Indian Markets and going all out for the booming VAS market. At least, Bharti could announce these acquisition details after sufficient gaps otherwise all the markets are going to hear is money going out of Bharti Airtel’s coffers with feeble indications of a possible return on the investment.
What do you think of the recent acquisition spree of Bharti Airtel? Would you as a Bharti Airtel investor consider the long term potential of these deals and stay invested.