Airtel Sells Stake In DTH Arm To Warburg Pincus For $350 Million

The Indian affiliate of Warburg Pincus, the New York-based private equity firm, will acquire up to 20 percent equity stake in Bharti Telemedia Ltd. for $350 million, India’s largest telecom operator said in media statement.

Of this, 15 percent stake will be sold by Bharti Airtel and the balance by another Bharti entity which holds 5 percent stake, the Sunil Bharti Mittal-led company said. At the end of the transaction, Airtel will own 80 percent stake in Bharti Telemedia.

Bharti Telemedia is Bharti Airtel Ltd.’s direct-to-home paid TV service provider and offers services under the Airtel TV brand.

“Airtel has enjoyed a very successful partnership with Warburg Pincus in the past and we are excited to partner with them once again in an attractive and fast growing space,” Gopal Vittal, managing director and chief exceutive officer (India and South Asia) at Bharti Airtel said in the statement.

As part of the deal, Viraj Sawhney, managing director at Warburg Pincus India will join Bharti Telemedia’s board.

For Warburg Pincus India, the deal is a step towards capitalising on India’s large consumer base, which is expanding with growing TV penetration in Tier 3 and Tier 4 cities. “Airtel DTH is well positioned to capitalise on incremental growth in digitisation and we are pleased to work alongside the Bharti Group again,” said Vishal Mahadevia, managing director and co-head, Warburg Pincus India.

Airtel’s recent strong performance post demonetisation as compared to peers keeps brokerages positive on this deal with Warburg Pincus.

Here’s what brokerages had to say:

Morgan Stanley

• Morgan Stanley expects revenue to rise 10 percent and operating income at 12 percent compounded annual growth rate over financial years 2017 to 2020.
• The transaction values the DTH business marginally ahead of their estimate of $1.65 billion.
• Cash raised from the sale should enable Airtel to fund capex on the India wireless business.
• Maintains ‘Overweight’ and a target price of Rs 658.

Macquarie

• Expects the combined entity to benefit from synergy benefits largely towards content and transponder costs.
• Meeting its guidance is necessary to tackle investor concerns around average. revenue per user and rising penetration of over the top media platforms.
• Airtel has given a guidance on merger synergies of Rs 510 crore in financial year 2019 and subscriber additions of one million in financial year 2018.
• Valuation reflects Airtel’s strong recent performance as well as demonetisation.

Kotak

• Rationale of the transaction was setting a benchmark for the DTH arm’s valuation for a future further stake sale in the private or public markets