There have been Rumors in the Market Circle Today [My trusted source] that Bharti Airtel is likely to exit Sri Lankan Operations in favor of Axiata.
Airtel’s Sri Lanka operations consists of 1.6mn subscribers, assets of INR7.4bn, liabilities of INR14.8bn and losses of INR2.5bn for the year ending Mar12. Axiata operates in Sri Lanka through Dialog Axiata (DIAL). DIAL trades at Colombo exchange at an EV/ sales of c1.6x. DIAL has significantly higher market share in subscribers than that of Airtel.
Assuming a similar EV/Sales, Airtel’s Sri Lankan operations are likely to be valued at INR4bn. While this is likely to be significantly lesser than Airtel’s cumulative investments, the selling of Sri Lankan operations may improve the profitability of Airtel’s consolidated operations.
The recent bond offering by Airtel suggests significant increase in interest costs. Airtel raised USD9bn debt for acquiring Africa operations in 2010 at LIBOR+195-bp.
Selling Sri Lankan operations may lead to better profitability and cash generation. This may reduce the debt and interest costs and also help Airtel combat the uncertain Spectrum Regulatory cloud in the aftermath of 2G Spectrum Scam.