Bharti Airtel’s New Corporate Structure to Help Reduce Statutory Costs: Brokers

Bharti Airtel Ltd.’s new corporate structure, which will focus on digital, Indian, international and infrastructure businesses, will help the telecom operator save money on licensing and user fees. spectrum, said at least two brokers.

“The new structure ensures that digital business will not be exposed to license fees and spectrum usage charges in the future. The telecom business is housed in a separate entity with no non-telecom business as a subsidiary, making it tax efficient AGR,” ICICI Securities said in a report.

According to Kotak Securities, Bharti Airtel’s new corporate structure will allow it to recognize a portion of parent entity revenue instead of digital services provided to mobile, broadband and enterprise customers. The remaining amount relating to the licensed connectivity business will be transferred to Airtel Ltd. on an arm’s length basis, in a manner similar to Reliance Jio. As a result, the payment of statutory levies, license fees and spectrum usage fees, relating solely to revenues from the connectivity activity, will decrease.

On April 14, the Sunil Mittal-led operator said it would house the digital business, while telecom services, infrastructure, DTH and the Africa unit would be housed in subsidiaries, separating the entities regulated entities subject to licensing requirements and unregulated digital entities. businesses. This, he said, will help him sharpen his focus on digital assets and tap into opportunities in the segment.

  • While the new branch Airtel Ltd. will own all of its telecommunications business (mobile, broadband and enterprise), Airtel Payments Bank will remain a separate entity under the parent company.
  • Bharti Telemedia Ltd., the arm operating 100% DTH services, will sit alongside Airtel Ltd. for the time being, 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 currently are.

“We believe this will bring agility, expertise and operational rigor to serve our customers brilliantly while providing flexibility to unlock value for our shareholders. This structure will serve us well over the next few years and is a win-win situation for all stakeholders,” Mittal, Chairman of Bharti Airtel, said in a press release.

Bharti Airtel had digital assets spread across multiple entities and therefore lacked a united push and an opportunity to cross-sell, ICICI Securities said. A separate digital entity, according to the brokerage, should focus on business, and united efforts are aimed at fine-tuning execution.

The new structure is inspired by that of Reliance Industries Ltd. In 2019, the conglomerate headed by Mukesh Ambani designed a new holding structure for its telecommunications and digital businesses – Reliance Jio Infocomm Ltd. Eventually, Jio Platforms raised over Rs 1.5 lakh crore by selling over 33% stakes to Facebook Inc., Google and several other strategic and financial investors.

Operational impact

According to Kotak Securities, it is difficult to estimate the likely break and upside at this time, but a 10-15% change in revenue can increase India’s Bharti Airtel Wireless Ebitda by 3-4% over the course of exercise 22.

Credit Suisse, however, said the potential for unlocking value would be limited given the current scale of digital business. Once the segment reaches scale over the next 5-10 years, the company can revamp the organizational structure to unlock value. Business-to-consumer digital businesses including Airtel Thanks, Airtel Wynk and Airtel Xtream are growing rapidly, with a monthly active user base of 19 crore (62% of its total wireless subscriber base) and revenue of ‘about Rs 100 crore, the research firm said.

The new structure, ICICI Securities said, does not indicate any plans for immediate monetization of digital assets, as it has yet to unlock the potential of the business. But in the future, when the company becomes big, it can still effectively restructure itself to monetize the digital asset.