Bharti paying 10 times EV/EBIDTA for Zain: Macquarie

89343 Investors following Bharti Airtel. Share this News with them.

0

Like this story, share it with millions of investors on M3

Bharti paying 10 times EV/EBIDTA for Zain: Macquarie

Being negative on the deal, Shubham Majumder, Regional Head of Telecoms Research - Asia, Macquarie Capital Securities said Bharti was paying 10 times EV/EBIDTA for the Kuwaiti telecom.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Zain board approves asset sale to Bharti: Sources Zain board gives nod to sell African assets to Bharti ALSO READ See latest News about Bharti Airtel See previous management interviews See what other Experts & Brokerages are saying about Bharti Airtel Bharti Airtel BSE | NSE 29/05/12 Are Mutual Funds betting on Bharti Airtel?

The market has been abuzz with news of the Bharti Airtel -Zain deal. It has been learnt that the Zain board has approved the proposal to sell its African assets to Bharti. The deal is likely to be signed in the next few days, sources have informed.

Being negative on the deal, Shubham Majumder, Regional Head of Telecoms Research - Asia, Macquarie Capital Securities said Bharti was paying 10 times enterprise value/earnings before interest, taxes, depreciation and amortization or enterprise multiple (EV/EBIDTA) for the Kuwaiti telecom. "Zain needs to grow at 20-21% in the next two-three years."

The Bharti-Zain deal, he said was more expensive than the pact with MTN. "The Memorandum of Understanding in Africa is low at 110 minutes. There is a definite scope to improve," Majumder said, adding that Nigeria was more important in this deal.

For Bharti, he has set a price target of Rs 280 a share with further downside.

Below is a verbatim transcript of an exclusive interview with Shubham Majumderon CNBC-TV18. Also watch the accompanying video.

Q: Will the market worry about the kind of valuations that Bharti Airtel is paying out for the Zain? Could that determine what the near-term reaction to the stock could be?

A: We are kind of negative on the deal in the short-term. There is no surprise though in the valuations. The valuations have stacked up at an enterprise value of USD 10.7 billion that is offered by Bharti of which USD 9 billion is going to be cash payout. Bharti is going to assume USD 1.7 billion of debt.

If you look at the valuation multiple that Bharti is paying out, it's upwards of ten times on enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple based on current EBITDA of Zain Africa and even if it were to factor in significant EBITDA growth of 20-22% on year on year basis for the next two years on December 2011 or March 2012 numbers, the deal would still be upwards of 6 times to 6.5 times on EV/EBITDA multiples. This would make it amongst the most expensive emerging market telecom on December 2011 or March 1-12 numbers.

I do not doubting the ability of Bharti to potentially turnaround the business especially at the profit after tax (PAT) level. I am cognisant of a fact that even after factoring in 20-22% kind of compound annual growth rate (CAGR) in EBITDA over the next two years and not even comparing on a PE multiple, given that earnings per shares (EPS) is negative at this point for Zain Africa on an EV/EBITDA multiples two years out, the deal would still remain very expensive especially when you compare it with the benchmark African asset MTN, which trades about 4 times on EV/EBITDA multiple on December 2011 numbers.