With the deal, Bharti will have 7.4 million subscribers in Uganda, coming close to the the segment leader, MTN, which had 7.7 million customers till the quarter ending December 2012. Warid, the third largest, had 2.8 mn, while Bharti had 4.6 mn. After the deal, Bharti would have a market share of 39 per cent in Uganda.
However, the average revenue per user (Arpu) is very low, at less than $4 as of end-December 2012. Bharti's Arpu in the entire African region was $6.2 in that quarter. Though a low Arpu market, Uganda would have 11.9 per cent of Bharti's total customers in Africa.
"We believe this market consolidation offers great synergies by bringing together the best of Airtel and Warid to better serve customers in Uganda and drive forward our vision of offering affordable best in-class services in Africa. This development will translate to a healthier telecom sector in Uganda which will be ready to invest & grow in wireless broadband & m-Commerce services," said Manoj Kohli, managing director and chief executive officer (international) at Bharti Airtel.
Bharti did not disclose the price paid and other financial details of the deal and said it was subject to regulatory and statutory approvals. Analysts reckon it would have paid $224-280 mn (Rs 1,200-1,500 crore) for the acquisition if an enterprise value/subscriber metric of $80-100 is considered. Four years earlier, the Essar Group, which wanted to buy Warid's operations in Uganda and Congo but did not complete the transaction, had pegged the valuations for the two countries at $318 mn.
Though the news came before the markets closed, the Street did not react much to the news and the stock closed flat at Rs 299.45. "While the move could help Bharti increase its base in the country, the impact on revenue would not be much, given Uganda fetches Bharti just about three per cent of its Africa revenues," says an analyst.
The company continues to invest in Africa, as penetration at about 40 per cent means scope for growth and the Arpu for Bharti's Africa business at $6.2 is much higher than the one for India at $3.4. Further, demand for data applications and mobile e-commerce is much more than in India, says an analyst.
While the company invests in Africa, its operations there continue to post losses. For the first nine months of the financial year 2012-13 ended December, it had Rs 1,724 crore of losses, almost double of the year-ago period. Given the correction in the stock price, most analysts (62 per cent, says Bloomberg) have a buy rating, with a price target of Rs 355, most of the value coming from the India business. What is pulling down the sum of the parts valuations are the regulatory uncertainties (Rs 60-Rs 65 a share) and the Africa business (Rs 20 a share).
Bharti entered the African markets in 2010 by acquiring Zain Telecom's assets in the continent for $9 billion. It operates across 17 countries in Africa, with 62 million customers by the quarter ended December 2012.
Besides India and Africa, Bharti operates in Bangladesh and Sri Lanka.