The question on everyone’s mind is why is going for such a sizable fund raise?
We rate Bharti BBB minus with a negative outlook and that really reflects the negative outlook on the India sovereign. The rights issue of $2.8 billion we believe will help deleverage the balance sheet and also prepare the company for capex funding. Most likely, they will use this money for the 5G spectrum auctions which will likely happen in the next 12 to 18 months. Overall, Bharti is in a very good position to take over some of the market share from Vodafone-Idea and it also reflects a strong growth potential and confidence of the promoter group to put in additional equity in the business.
What happens to the bread and butter business because about three to four months back, Bharti was the first one to bite the dust and take selective tariff hikes. We could see Bharti continuing to move upwards as opposed to what the incumbents have done so far.
Yes we believe that tariff hikes are imminent. There have been delays in tariff hikes because of the Covid period and also because of the weakness at Vodafone-Idea. But we now believe that Vodafone-Idea will have to hike tariffs to survive in this competitive market. Bharti will see that as a welcome move and we will have to wait and see whether Jio also follows through. Clearly tariffs are quite low in India compared to the other regional markets.. They are Rs 150 per month per user and affordability in our view is not a major issue for the customers. It can easily go to around Rs 170-180 in the next 6 to 12 months.
There are unconfirmed reports that Google could be making a substantial investment in Bharti. What is it that you are making of this move because we have precedent in the case of Jio. When Facebook invested in Jio, then many other players also wanted a pie of Jio. Could this possibly be a rerating moment for Bharti if the Google news comes true?
We cannot really comment on any speculation but what I will say is that several strategic investors will definitely be looking at Indian telecom as a market where the technology adoption is rapidly rising and it has accelerated because of the Covid period. A lot of strategic investors are wary of investing in China. Within Asia, India is one of those markets which has consolidated into two large players and plus two. As a result of the evolving ecosystem of startup share and rapid technology adoption, it makes sense for strategic investors to invest in India. But we cannot comment on the speculation about who is going to invest in Bharti.
