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SELLING pressure on Bharti Airtel shares eased on Wednesday, but the stock figured among the laggards on a day when the market rose nearly 4%. The stock closed at Rs 768.90, down Rs 1.50 over the previous close, and has shed nearly 11% in the past three trading sessions after declaring its intention to acquire South African telecom firm MTN.
Market observers expect the stock to remain weak in the near term on concerns that the stock-cum-cash acquisition will be a strain on the company's financials. Any potential upside will depend on Bharti's ability to implement its low-cost model in the markets where MTN operates. "In the next few days, Bharti scrip is likely to trade volatile with a downward bias due to concerns over short-term EPS dilution in case of a deal with MTN. This will continue till the deal is concluded," Angel Broking analyst (IT & telecom) Harit Shah told s.
Bharti's plans to acquire a 49% stake in MTN effectively values MTN at a 30% premium to its market cap and implies at least 57% equity dilution for Bharti. "While the deal could help Bharti realise its long-cherished goal of having a global footprint, we believe the impact on medium-term earnings will hurt valuations," said a report by ABN Amro. ABN Amro has estimated that Bharti may need to raise additional debt of about $3 billion. Also, the equity capital will expand by 57% post the proposed fresh equity and GDR issue. "This could dilute FY10 consolidated EPS (with 49% of MTN's PAT) by 7%," it said. Ambit Capital also raised concerns due to increased geo-political and implementation risks, which could put further pressure on the stock. Over 10% of MTN's subscribers are in geo-politically sensitive countries, such as Afghanistan, Sudan and Zambia.
Market observers expect the stock to remain weak in the near term on concerns that the stock-cum-cash acquisition will be a strain on the company's financials. Any potential upside will depend on Bharti's ability to implement its low-cost model in the markets where MTN operates. "In the next few days, Bharti scrip is likely to trade volatile with a downward bias due to concerns over short-term EPS dilution in case of a deal with MTN. This will continue till the deal is concluded," Angel Broking analyst (IT & telecom) Harit Shah told s.
Bharti's plans to acquire a 49% stake in MTN effectively values MTN at a 30% premium to its market cap and implies at least 57% equity dilution for Bharti. "While the deal could help Bharti realise its long-cherished goal of having a global footprint, we believe the impact on medium-term earnings will hurt valuations," said a report by ABN Amro. ABN Amro has estimated that Bharti may need to raise additional debt of about $3 billion. Also, the equity capital will expand by 57% post the proposed fresh equity and GDR issue. "This could dilute FY10 consolidated EPS (with 49% of MTN's PAT) by 7%," it said. Ambit Capital also raised concerns due to increased geo-political and implementation risks, which could put further pressure on the stock. Over 10% of MTN's subscribers are in geo-politically sensitive countries, such as Afghanistan, Sudan and Zambia.
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