Recast may boost Airtel’s income in FY22: Analysts – The Economic Times

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Synopsis–Analysts said that moving all digital assets under the listed Bharti Airtel parent entity mirrors what Reliance Industries (RIL) did when it incorporated Jio Platforms (JPL) to house its digital assets, while moving the licenced connectivity business to Jio Infocomm as a step-down subsidiary.

Bharti Airtel’s new corporate structure allows it to split its revenues from the connectivity and digital services businesses, and in turn, cut its statutory payouts towards licence fees and spectrum usage charges (SUC), said analysts. This, they said, could potentially boost the company’s operating income from the India wireless business in the current fiscal.

Analysts added that moving all digital assets under the listed Bharti Airtel parent entity mirrors what Reliance Industries (RIL) did when it incorporated Jio Platforms (JPL) to house its digital assets, while moving the licenced connectivity business to Jio Infocomm as a step-down subsidiary.

Analysts, in fact, expect Bharti to go for a second round of restructuring to monetise its digital assets — like JPL — once the business hits a certain scale, especially as the digital services business is growing rapidly and market opportunity is slated to rise multi-fold.

Airtel’s combined digital service revenues, which is now at Rs 100 crore, is proposed to be scaled up to Rs 1,000 crore in a few years. Its digital assets include Wynk Music, Airtel Xstream, Airtel Thanks, Mitra Payments platform, Airtel Ads, Airtel IQ, Airtel Secure, Airtel Cloud and all other future products/services.

Bharti Airtel on Wednesday had unveiled a new corporate structure that would see the listed parent house the digital and infrastructure assets, while moving the telecom businesses to a newly created arm, Airtel Ltd. The reorganisation is likely to sharpen the Mittal-led entity’s focus on digital operations with an aim to monetise them in future. The new structure is also likely to remove the telecom regulatory overhang on Airtel’s digital businesses.

Airtel shares initially rose nearly 2% Thursday morning and eventually settled down, trading 0.28% higher at Rs 537.50 in early afternoon trade on BSE.

Kotak Institutional Equities said Bharti “would benefit from a potential reduction in statutory levies” — linked to adjusted gross revenue (AGR) — due to the bifurcation of its licensed and digital service revenues under the new corporate structure, which could boost the telco’s India wireless Ebitda or `operating income’ by about 3-4% in FY2022.

Credit Suisse backed the view, saying the Sunil Mittal-led telco’s re-organisation clearly demarcates between regulated entities – subject to licensing needs — and the non-regulated digital businesses, creating a tax-efficient corporate structure.

Analysts said bringing all digital assets under the listed parent entity ensures this business is not exposed to any licence fees and SUC liabilities and also opens up value unlocking possibilities, going forward.

“Bharti Airtel’s new structure indicates no immediate monetisation plans of digital assets, and rightly so, as it is yet to exploit the potential from the business. But when this business becomes large, it can always do another restructuring to monetise the digital assets at the right time,” ICICI Securities said in a note.

J M Financial said Bharti’s new corporate structure “would not be a hindrance to a separate listing of its digital assets,” even though the market had earlier anticipated that the listed entity would become a holding company with a separate digital subsidiary. The separation of Bharti’s telecom assets into a separate legal entity, it said, would enable the company to go for a separate monetisation of its digital assets.

ICICI Securities said subsuming the digital businesses into the standalone listed entity would also open up opportunities to cross-sell the services, something which Bharti was missing out as the digital assets were sitting in multiple entities. A separate digital entity, it said, is likely to bring focus to the business and united efforts are intended to sharpen market execution.

Analysts attributed Bharti’s decision to keep Airtel Payments Bank as a separate arm of the listed parent to regulatory issues as the payments banking entity is regulated by Reserve Bank of India (RBI), wherein the regulations for maximum shareholding, FDI tend to be decided separately by the country’s apex bank.

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