Syed Safawi, chief executive officer, Viom Network says the merger with American Tower Company (ATC) will be completed by the start of the next financial year if all the approvals come through.
Speaking to CNBC-TV18's Kritika Saxena, Safawi says he expects the company to grow in double digits and eyes an incremental market share of 35 percent.
ATC will be buying a 51 percent stake in Viom Networks in the largest inbound M&A deal so far this fiscal, marking an end to the two year long discussion process.
Below is the verbatim transcript of the interview..
Q: After ATC takes in management control what happens to the current management of Viom Networks?
A: I think the proposed transaction is clearly the testimony to what the current team of 1,400 Viomites have accomplished in the last three years and created so much value from a loss making company three years back to a sustainably profitable company now and therefore the current management team is clearly at the centre of the future business that is going to be run in India.
Q: So there will not be any change as far as the current management is concerned of Viom Networks. The big question that most employees have once an acquisition goes through is what happens to the employees? Would there be any kind of layoffs whatsoever going ahead?
A: I think right now the whole team will be focused on getting the regulatory and government approval, which should take 4-6 months. Until such time the closures happen, both the companies will be run as separate entities. The rising focus is to clearly to continue the good work that the team has done and deliver great financial year again where we are looking at almost doubling profits all over again. So, that is the focus right now. None of us really thinking six months ahead at this point in time, we will deliver a great year, close the transaction, which should happen by the end of this financial year and only then will the integration process start, in the next financial year potentially, after all the approvals and that is when we will sit down and clearly our focus is that there is so much potential in India right now, with the data boom happening in the second wave of telecom growth happening. I think we should just focus on growth and that is what we are focused on and I am sure the combined entity with 56,000 tower base will focus on just growing, rather than worrying about reduction. I do not think that is the focus, and that is not the purpose of such a transaction.
Q: What is the kind of integration that will entail going forward in terms of operations as well? Because as you said 56,000 towers, very close to your immediate competitor Bharti Infratel, what happens then in terms of the integration after the deal is completed?
A: In terms of systems, processes, reporting, logs and everything, a lot of work will have to go in. The people integration part will obviously be critical in this as well and that is the focus to which will start post all the approvals come in and it will take a fair amount of time. In a deal of this size which is well over Rs 20,000 crore of enterprise value, these things take time, several quarters and sometimes a year as well. So that is the journey we will have to travel, probably starting next financial year.
Q: The SREI Infrastructure management just a short while ago indicated that there would be a merger on cards. Do you have any clarity with respect to how the merger would pan out? Of course as you said there will be necessary approvals and regulatory requirements but at the end of it, the eventual aim is a merger. So what is the kind of timeline that you can give me? How will the merger work? Would it be within the next 1-2 years?
A: I think the way it logically needs to work and it will work is that the shareholders who are continuing will have to agree on a final swap ratio that they will have in the merged entity and that will happen post revered due diligence of the other entity as well and then when the final evaluations are on the table, they will agree to swap ratios and then the combined entity and the structure will take place. And you are right, these things will take several quarters to do potentially, so it will take that much time.
Q: A rough timeline on when a merger could go through, pending approvals?
A: Optimistically, beginning of the next financial year, post the approval, this should run concurrently with the approval process and beginning of next year all going well, we should be in a position to do it.
Q: Operationally what happens - you have been competing against Bharti Infratel. Yes, there has been a significant gap but if I am correct in terms of the valuation we haven't had a chance to do the math yet but in terms of the overall equity valuation you will be very close to Bharti Infratel. So, give me a sense of how the combined operational and market share growth will be for the combined entity?
A: What this integration will bring post closure is a lot of local expertise and team Viom has accomplished in the last many years combined with global insights and global financial powers and put the two together and you really will have one of the best independent infrastructure companies in the telecom space anywhere and that is the power that will see us through to much better incremental market share and the combined entity should be clearly looking at at least 25-30 percent of incremental market share.
Q: So, in terms of operational growth in that case once ATC comes in on board how do you foresee the rental yields coming down because that has been a concern for the entire sector?
A: Rental yields have not come down for us and I don't think most of the sector - the data tendencies which come as loading rental is incremental for all the tower company. So, rental yields for us also year-on-year (Y-o-Y) keeps going up because contractually also there is an increase that happens for all the tower companies. So, I don't see them getting impacted significantly.
Q: I have been talking to Viom management for quite some time, the sense over the last couple of quarters was, SREI Infrastructure had also spoken to us indicating that there is a need for fresh liquidity for Viom to be able to scale up and go to the next leg of growth. So once ATC comes in, I believe that Rs 7,600 crore plus will be going to the shareholders. Is there any kind of clarity or any kind of commitment you have as to how much of fresh liquidity ATC will put into the company?
A: As of now, Viom is self funded completely, because we generate big cash flows and if you recall we had over Rs 8,000 crore of debt three years back, we are down to sub Rs 5,500 crore end of September. So this is through cash flows from operations that we are able to fund it now and bring down debt. At the end of this financial year, our Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBIDTA) ratio should be extremely healthy at probably sub 2.5 or thereabouts. So therefore funding operations and funding growth is not such a challenge for Viom. It is how fast you want to grow that potentially needs liquidity. If the growth prospects really shoots through the roof then yes, there will be equity requirements of much higher levels. That is when those discussions will happen. As of now for the growth that we foresee which is double digit growth I don't foresee as a challenge.
Q: In that case can you just to help me simplify the financials, currently what is the EBITDA, the rental and the tenancy ratios that you have and by how much will these three figures go up post ATC coming on board, post the integration.
A: Current EBITDA last year we just finished is upwards of Rs 1,800 crore and I see that Viom as a standalone - I can't speak for the combined entity at this stage - Viom's stand alone should be looking at a double digit kind of EBITDA growth Y-o-Y which we continue to do and should be looking at that from year on as well driven by growth.
Q: Will there be a change in branding of Viom once ATC comes on board?
A: Too early to say about all those things what finally will be the look and feel etc but right now we have work to do and to focus on the business.
Q: ATC has been looking at acquisitions across the board. This is a large acquisition but going forward would the combined entity look at a larger acquisition because if you do you will beat your immediate peer Bharti Infratel, wont you?
A: Yes. The combined shareholder once it is an integrated merged entity will have to revaluate and take that call as and when that happens. It is too early to talk about those things at this stage.
Q: Can you give me a sense of the financial that will stand, of the merged entity post integration? We are trying to understand exactly what is the kind of leg-up, in terms of growth that you will see. So just a sense as to once the deal is completed, what will be the financials of Viom?
A: It is only post the due diligence, reverse due diligence that those numbers will play out and will become visible, which like I said will take a good four to six months.
Q: Listing was something you were looking at. Now it is out of the radar or maybe three to four years from now you will look at a listing of Viom networks as well?
A: Extremely futuristic right now to answer that one, but right now the focus is customers, continue to run a great company and we will see what happens three to four years down the line. I am sure we will touch base again sometime.
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