BHARTI-ZAIN DEAL, IS IT THE BEGINNING OF THE END
I am a great admirer of Mr. Sunil Bharti Mittal, he had made a great contribution to the Indian Industry and created astonishing share holder value. Some times even the great companies make silly mistakes, mistakes which can ruin their credibility and the empire they had built sweating day and night. I have been keenly studying the probable impact the Zain Africa deal could have on this great company, I feel it could be devastating, could damage the financials beyond repair. Hope I am wrong but afraid I may be correct. I am not an expert but a simple investor, using ordinary common sense I feel this deal would take a minimum of 20 years to recover the initial investment, forget about profits or break even happening in foreseeable future.
The Zain Africa Bv deal of Bharti is 10.7 billion$ i.e., roughly 49,220 crores. It has a customer base of 4.2crores. simply speaking the acquisition cost of each customer is Rs.11,719.
The Indian operations of Bharti had a revenue of 34,048 crores for 09. It generated a net profit of apprx 7743 crores. It had a customer base of 12.5 crores apprx, it means net profit per customer works out to be Rs.619 per annum(may come down in future due to severe tariff competition).
Let us presume that the presently loss making Zain surprisingly generates the profits at par with the Indian market, I mean a minimum of Rs.619 net profit per customer, it would take a minimum of 19 years for Bharti to recover customer acquisition expenditure( Rs.11719 divided by Rs.619). I have not factored further costs of Interest, operations etc.
Only global consolidation of the industry could stop further fall in tariff, which still has a long time to go.
We can not compare Indian economy and the robust growth with any of the (or collectively) countries in the Zain Africa deal. Therefore as per my understanding this segment could never generate profits at par with Indian market, however smart and efficient the Bharti team may be.
In most of the western countries the penetration of mobiles is much more than the respective population, I mean more mobiles per person ratio’s. This cannot be a parameter for penetration of mobiles in the African and Asian continent.
I request the experts or any other gentlemen who are better informed to correct me if my opinion is wrong.
S.MADHUSUDAN RAO.
