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Bharti Airtel - Restructuring aimed at digital biz, AGR-tax efficiency - ICICI Securities

Posted On: 2021-04-15 04:59:50 (Time Zone: UTC)

Bharti Airtel (Bharti) has announced a new corporate structure wherein digital assets, and infrastructure assets (fiber and tower [via Nettle Infrastructure]) will be pushed up into the parent entity, and telecom business will be pushed down to the wholly-owned subsidiary. The new structure is aimed at 1) bringing all digital assets under one entity and focusing on growing it fast; and 2) by pushing telecom business at bottom, it will make the entire organisation AGR-tax efficient. Clearly, the new structure indicates no immediate monetisation plans of digital assets, and rightfully so, as it is yet to exploit the potential from the business. However, in future, when business becomes large, it can always restructure efficiently to monetise the digital asset.

- Bharti Airtel has announced a new corporate structure. The new structure is aimed at merging Airtel Digital Ltd, a wholly-owned subsidiary, with the parent entity. Eventually, it plans to house digital assets including Wynk Music, Airtel X stream, Airtel Thanks, Mitra Payments (platform used by retailers), Airtel Ads, Airtel IQ, Airtel Secure, Airtel Cloud and all future digital products and services at parent-entity level.

India telecom services, including mobile broadband and enterprise business, will be placed in Airtel Ltd, which will be the wholly-owned subsidiary of Bharti Airtel Ltd (parent). It looks like regulated business, which attracts license fee and other regulatory levies are pushed at the bottom, a structure similar to Reliance Jio Infocomm, a part of Jio Platforms. Bharti Telemedia (DTH) and Bharti Hexocom will be under Airtel Ltd, which are eventually planned to be merged with Airtel Ltd.

All international assets including Airtel Africa, Network i2i, Bharti Airtel Lanka and Robi Axiata will sit in international business. The third segment will house infrastructure assets, which includes Nxtra Data (Data centers) and Indus Towers.

- What has changed from the existing structure? In the new structure, digital business has been pushed at the top at parent entity, but no separate digital entity has been created which can be monetised without taking exposure to Bharti telecom's business for now. But it can always do another restructuring to monetise digital assets at the right time. The new structure ensures digital business is not exposed to any licence fees and spectrum usage charges liabilities in future. Telecom business is housed in a separate entity with no non-telecom business as subsidiary, thus making it AGR-tax efficient.

- Sharpening the focus and likely value unlocking. Digital business is growing very fast, and the market opportunity is rising multi-fold. Bharti had digital assets sitting in multiple entities and thus, it was missing a united push and an opportunity to cross-sell services. A separate digital entity is expected to bring focus to business and united efforts are intended at sharping the execution.

Shares of BHARTI AIRTEL LTD. was last trading in BSE at Rs.522.35 as compared to the previous close of Rs. 545.35. The total number of shares traded during the day was 784864 in over 20738 trades.

The stock hit an intraday high of Rs. 539.15 and intraday low of 518.7. The net turnover during the day was Rs. 414181365.

Source: Equity Bulls

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