Brokerages cheer Bharti-Telenor's deal, but flag sector issues 

On the debt front, Motilal Oswal said, “With an operating cash flow of Rs 32,000 crore, net debt of Rs 1,02,000 crore, the investment would add hardly 2 percent to net debt, which would be offset by the EBITDA contribution from the merger.” The firm also foresaw a better roll-out of 4G services on 1800 MHz which remains the most efficient due to its well-developed ecosystem. Deutsche Bank maintains its buy call on the stock with a target price of Rs 400. It feels that Telenor’s spectrum liability would account for a large part of the acquisition cost. “Adjusting for the upfront payment, the license-fee set-off and the annual payments made to date, we estimate Telenor’s outstanding spectrum liability would be around Rs 1,600 crore (USD 230 million). This would transfer to Bharti in the event of the acquisition.” However, Fitch felt that Bharti’s credit profile would remain unaffected as benefits from additional spectrum assets will offset spectrum liabilities taken over. Spectrum Needs & User Base ICICI Securities maintains its buy call on the stock with a target price of Rs 410 based on better prospects as well as no extra spectrum needs. The brokerage feels that the telecom firm could further cement its position in the telecom space with a combined subscriber base of 31 crore. It remains a preferred choice owing to the superior operating metrics, analysts at the firm wrote. 

Deutsche Bank said that Bharti could ascribe some value to Telenor’s subscriber base, especially in two key markets of Uttar Pradesh (East) and Uttar Pradesh (West). BNP too concurred with this view and said that Airtel would be strengthened in markets such as Gujarat, Maharashtra, UP East and UP West. On spectrum requirements, ICICI Securities said, “Airtel possesses extensive spectrum coverage across circles with 942.9 MHZ of total spectrum (pre-deal), 24.1 percent of the total spectrum in the industry (ex- BSNL/MTNL, pre-deal) and would not have any spectrum requirement in the near term.” Competitiveness & Challenges Motilal Oswal feels that the added spectrum will help Airtel to stand up to Reliance Jio’s aggressive plans. “While the incremental spectrum may not be presently required, given the large-scale data traffic on RJio’s network, holding high quantum of spectrum would allow Bharti to compete with RJio in a fixed-cost-driven market. We believe Bharti’s strategy to remain ahead of the curve in data-rich spectrum investments should hold it in good stead,” the brokerage said. Fitch, meanwhile, believed that the consolidation was taking places to take on Reliance Jio. 

The agreement by Bharti Airtel to buy Telenor's Indian telecom operations is the latest sign that the entry of aggressive new operator Reliance Jio is spurring incumbents to consolidate to better meet the intense competition and weaker telecom companies to exit altogether.” Furthermore, it believes that the consolidation is not likely to return any pricing power to operators in the near term. Edelweiss has a hold call on the stock with a target price of Rs 340. The brokerage sees competitive intensity to be high despite a cut in the number of players in the space. This, it says, would be based on operators’ aim to acquire higher market share and would look to cut prices. Others could also follow suit with this 

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