Anand Rathi maintains 'Sell' on Bharti Airtel

MUMBAI: Anand Rathi has maintained ‘Sell’ rating on shares of Bharti Airtel after the company announced plans to acquire Zain Africa’s assets.

Bharti Airtel has confirmed entering exclusive discussions with Zain until 25-March-10 to acquire the latter’s African business (excluding Morocco and Sudan) for US$10.7billion EV (Enterprise Value).

“We do not expect Bharti to dilute equity, given its fortress balance sheet—Bharti is FCF positive with a net-cash position (ex-Indus). Even a 2x net debt-to-EBITDA would allow Bharti to borrow up to $7bn, with SingTel possibly chipping in the balance (if any). However, Bharti’s EPS would get materially diluted (10-20%) for 1-2 years at least.

Implied valuations in the proposed Zain transaction suggest a 5-8% downside for Bharti shareholders, in our view. Although, Bharti stock is pricing in a lot of negatives/risks, after 9% share price collapse, we maintain Sell for now given lack of catalysts.