Bharti Airtel is looking to buy a controlling stake in Bangladesh’s fourth-biggest mobile phone operator Warid Telecom, pressing ahead with its international ambitions just two months after it failed in its second attempt to merge with South Africa’s MTN.
India’s largest phone company, by both revenues and subscribers, has applied to the Bangladesh Telecommunications Regulatory Commission (BTRC) for permission to buy a 70% stake from the Abu Dhabi group, the owner of Warid, the regulatory body’s chairman Zia Ahmed told news agencies in Dhaka.
He declined to say how much the stake was worth, but added that Bharti Airtel “initially intended to invest $300 million.” A Warid Telecom executive said Bharti Airtel and Warid are in exclusive discussions “on similar lines as the deal between Essar and the Abu Dhabi group.”
Warid expects to command “premium valuations since Bangladesh is an emerging market” and the Dhabi group will remain “significant minority investors”, the executive added. The Essar group announced last month that it is investing in Warid Telecom’s operations in Uganda and the Republic of Congo, valuing them at a total of $318 million. Bharti Enterprises deputy group CEO and MD Akhil Gupta reiterated that it is “interested in the SAARC region, especially Bangladesh.”
Bangladesh’s Daily Star reported the deal could be worth $900 million, but this could not be independently verified. Warid has just under 3 million customers, or about 5.5% of the country’s 52 million cellular subscribers. A Reuters report from Dubai, citing Dhabi group chief commercial officer Ali Tahir, said Warid expects to seal a deal by mid-January 2010.
Analysts said that mobile phone density in Bangladesh is only about 33% and the market is primed for rapid growth. The number of cellphone users is projected to double to 100 million by 2013. Urban India is close to reaching saturation as teledensity in cities, towns and metros has crossed 100% and revenues and profits of all Indian telcos are under severe pressure as they engage in a savage price war.
With about 115 million users, Bharti accounts for about a quarter of India’s wireless subscribers. It has overseas operations in Sri Lanka, Seychelles and British Channel Islands and had bid for licences across several markets in Africa and West Asia, an indicator that it views these regions as offering the most potential for growth. The bid for Warid also signals its intention to expand overseas through smaller buys across Asia and Africa.
Luca Ferro, managing partner with consultancy firm Value Partners India, said the fair enterprise valuation for Warid would be around $600 million. In June 2008, Japan’s NTT DoCoMo purchased 30% in TM International (Bangladesh), at a valuation of 18 times the EBITDA, or core earnings, of that company.
“Warid’s revenues for CY09 are estimated at $80 million. If we apply an EBITDA margin of 29% (that of Aktel), that provides us an EBITDA of $23.5 million for Warid. Assuming a valuation of 18 times the EBITDA on the lines of DoCoMo deal, Warid would be valued at $445 million. Add to it a control premium for 70% stake, and the valuation will be $580 million to $600 million,” he said.
He added that average monthly revenue per user (ARPU) in Bangladesh is low, with Warid’s at $2.1 in June 2009.
“The lower penetration implies a high growth potential. However, the sharp decline in ARPU is a concern,” Mr Ferro said.
PricewaterhouseCoopers’ telecom advisor and associate director Arpita Pal Agrawal said there are natural synergies in the proposed deal because Bangladesh’s market dynamics are largely similar to India. “Bangladesh is an under-penetrated market by global standards and there remains growth potential.”
A telecom industry executive said that the deal with Warid is unlikely to extend to its operations in Pakistan due to security concerns. The Dhabi group owns 70% in Warid Telecom Pakistan and Sing Tel, a majority investor in Bharti Airtel, the rest.
India has in the past refused to clear telecom deals involving companies with a presence in Pakistan, but in the change of stance, the Centre recently approved Norway’s Telenor to acquire a controlling stake in Unitech Wireless. Telenor has operations in both Pakistan and Bangladesh.
Source: Economic Times