But analysts believe that Bharti would have a challenging task ahead. Though Bharti has an experience of working in a challenging market and has successfully developed its ‘minute factory model’, it would still be required to increase Zain’s margin by at least 25% to make it a profitable proposition.
According to the latest report by Karvy stock broking, “Bharti Airtel’s India operations are characterised by strong free cash flow generation. Thus, on account of this, the telco believes it would be better off used to invest in expansion opportunities rather than kept on its books. Thus, it believes it makes more sense to look at brownfield ventures, that is choose ‘buy’ over ‘build’”. Though the company is strongly looking at that direction, it should be a little cautious about its picking and probably slow down a bit. “It might make more sense for Bharti Airtel to look at more options in South East Asia to consolidate its position in this area and also keep up its free flow cash reserve for the upcoming 3G auctions rather than dialing into South Africa,” says Prasoon Majumdar, Head, Global Strategy and Investment Consulting.
Prasoon has a point considering that Warid’s balance sheet currently stands with large doses of debt. Given that Airtel has plans to invest a whopping $1 billion in the Bangladesh market alone, the free cash argument gets further strength. (In November 2009, the Bangladesh market had a teledensity of 32% and mobile phone subscribers totalling 50.55 million, according to Bangladesh Telecommunication Regulatory Commission. The projections are that the total subscriber base would reach the mark of 100 million by 2015, but the market leader is GrameenPhone that currently has about 45% of the market share and is likely the only operator that is making profits).
Additionally, the 3G auctions in India are slated to happen by around April and if the company is serious about getting on this next generation data bandwagon, then the free cash flow would put this company in the front row. Mittal has also time and again mentioned in his comments to the media that he believes that the consolidation in the Indian market would start within the next 24 months and given that India is still the primary market for them (despite the competition that exists right now), these funds might help them in gaining some strategic stakes in the Indian market as well. It would perhaps be a wise decision if the company resolves to not dilute its EPS or its short term profits in its African objectives and be more committed to its Indian/South-East Asian business. But then, business is all about taking risks, and Sunil Mittal is no novice to that experience...
According to the latest report by Karvy stock broking, “Bharti Airtel’s India operations are characterised by strong free cash flow generation. Thus, on account of this, the telco believes it would be better off used to invest in expansion opportunities rather than kept on its books. Thus, it believes it makes more sense to look at brownfield ventures, that is choose ‘buy’ over ‘build’”. Though the company is strongly looking at that direction, it should be a little cautious about its picking and probably slow down a bit. “It might make more sense for Bharti Airtel to look at more options in South East Asia to consolidate its position in this area and also keep up its free flow cash reserve for the upcoming 3G auctions rather than dialing into South Africa,” says Prasoon Majumdar, Head, Global Strategy and Investment Consulting.
Prasoon has a point considering that Warid’s balance sheet currently stands with large doses of debt. Given that Airtel has plans to invest a whopping $1 billion in the Bangladesh market alone, the free cash argument gets further strength. (In November 2009, the Bangladesh market had a teledensity of 32% and mobile phone subscribers totalling 50.55 million, according to Bangladesh Telecommunication Regulatory Commission. The projections are that the total subscriber base would reach the mark of 100 million by 2015, but the market leader is GrameenPhone that currently has about 45% of the market share and is likely the only operator that is making profits).
Additionally, the 3G auctions in India are slated to happen by around April and if the company is serious about getting on this next generation data bandwagon, then the free cash flow would put this company in the front row. Mittal has also time and again mentioned in his comments to the media that he believes that the consolidation in the Indian market would start within the next 24 months and given that India is still the primary market for them (despite the competition that exists right now), these funds might help them in gaining some strategic stakes in the Indian market as well. It would perhaps be a wise decision if the company resolves to not dilute its EPS or its short term profits in its African objectives and be more committed to its Indian/South-East Asian business. But then, business is all about taking risks, and Sunil Mittal is no novice to that experience...
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