Bharti Airtel Ltd.’s new corporate structure to focus on digital, India, international and infrastructure businesses distinctly will help the telecom operator to save money on licensing and spectrum usage charges, at least two brokerages said.
“The new structure ensures that the digital business is not exposed to any licence fees and spectrum usage charges liabilities in the future. The telecom business is housed in a separate entity with no non-telecom business as subsidiary, thus making it AGR-tax efficient,” ICICI Securities said in a report.
According to Kotak Securities, Bharti Airtel’s new corporate structure will enable it to recognise a portion of revenue at the parent entity in lieu of the digital services provided to mobile, broadband, and enterprise customers. The remaining amount pertaining to the licensed connectivity business will be transferred to Airtel Ltd. on an arms-length basis, in a way similar to Reliance Jio. As a result, the payment of statutory levies, licence fees, and spectrum usage charges, pertaining only to connectivity business revenue, will reduce.
On April 14, the Sunil Mittal-led carrier said it will house the digital business, whereas telecom services, infrastructure, DTH and the Africa unit will be housed in subsidiaries, thus separating the regulated entities subject to licensing requirements, and non-regulated digital businesses. That, it said, will help refine its focus on the digital assets and exploit opportunities in the segment.
While the new arm Airtel Ltd. will hold all of its telecom businesses (mobile, broadband, and enterprise), Airtel Payments Bank will remain as a separate entity under the parent.
Bharti Telemedia Ltd., the 100% arm operating DTH services, will sit alongside Airtel Ltd. for now but will eventually merge with it.
All of the company’s infrastructure businesses (Nxtra and Indus Towers) and international businesses will continue to remain in separate entities as they are currently.
“We believe this will provide agility, expertise, and operational rigour to serve our customers brilliantly while providing flexibility to unlock value for our shareholders. This structure will serve us well over the coming years and is a win‐win for all stakeholders,” Mittal, chairman at Bharti Airtel, had said in a media statement.
Bharti Airtel’s new corporate structure. (Image: Recreated from company media statement)
Bharti Airtel had digital assets sitting in multiple entities and thus, it was missing a united push and an opportunity to cross-sell services, ICICI Securities said. A separate digital entity, according to the brokerage, is expected to bring focus to business and united efforts are intended at sharpening the execution.
The new structure is along the lines of that at Reliance Industries Ltd. In 2019, the Mukesh Ambani-led conglomerate had devised a new holding structure for its telecom and digital businesses — Reliance Jio Infocomm Ltd. Eventually, Jio Platforms raised more than Rs 1.5 lakh crore by selling over 33% in equity stakes to Facebook Inc., Google and several other strategic and financial investors.
According to Kotak Securities, it’s difficult to estimate the break-up and likely benefit for now, but a 10-15% shift in revenue can boost Bharti Airtel’s India wireless Ebitda by 3-4% in FY22.
Credit Suisse, however, said the value-unlocking potential would be limited given the current scale of digital business. Once the segment attains scale over the next 5-10 years, the company may revisit the organisational structure to unlock value. The business-to-consumer digital businesses comprising Airtel Thanks, Airtel Wynk and Airtel Xtream are fast-growing, with a monthly active user base of 19 crore (62% of its total wireless subscriber base) and revenue of around Rs 100 crore, the research firm said.
The new structure, ICICI Securities said, indicates no immediate monetisation plans of digital assets, as it’s yet to exploit the potential from the business. But in the future, when business becomes large, it can always restructure efficiently to monetise the digital asset.