Google to invest $1 billion in Airtel, Announces Long Term Partnership!
Tech giant Google announced that it would invest around $1 billion in India’s largest integrated communications solution – Airtel. The investment is a part of the ‘Google for India Digitalisation Fund.’
Under the Google Airtel partnership, Google would acquire a 1.28% stake in Airtel at $700 million (@ Rs. 734 per share), and the remaining $300 million would be invested in nurturing a five-year commercial agreement eyeing several projects like 5G, end-to-end customer services, cloud infra, affordable smartphones, etc.
Google and Airtel made some interesting joint statements in the press. Announcing the deal, the partners collectively stated that they understand the importance of a “Connected India” and look to transform and further the digital journey of businesses.
They shall remain committed to exploring open technology systems and creating digital services unique to India’s requirements. The partnership hinted at manufacturing affordable smartphones, which could be a game-changer in the services and communications industry.
5G solutions shall remain the central pillar of the deal, as the partnership plans to scale Google’s network virtualization solutions to deliver superior networking. It is to be noted that Airtel is already using Google’s 5G-ready Evolved Packet Core and Software-Defined Network Platforms.
The news brought cheers to the bear-guarded markets as Bharti Airtel jumped 15.6%, trading ~ Rs. 722 in the early morning hours on January 28, 2022.
Let us analyse the Airtel story so far.
Business
Airtel is the largest global communications and solutions provider globally and the second-largest mobile operator in Africa. The company boasts of ~470 million customers across 18 countries.
The company is amongst the top 3 mobile operators globally, serving more than 2 billion customers. Airtel holds a presence across diversified verticals ranging from entertainment broadband to digital TV and streaming services, digital payments, and financial services.
For enterprise customers (customers with annual revenue >Rs 25 million), India headquartered Airtel provides solutions ranging from cloud computing, data and cyber security, LoT, and tech-based communications.
Financial health
Bharti Airtel’s market capitalization was recorded at an impressive Rs. 2841 billion (as of year ended 2021.
For the year ended 2021, the company’s total revenue was Rs. 1,00,615.8 crore. The EBITDA stood at Rs. 46,138.7 crore, while EBITDA margins came at 45.9%. The interest coverage ratio was recorded at 3.62.
The net income for the telecom giant was published as Rs. 150.835 billion for the year ending 2021. Net profit margins stood at -15%.
The P/E of the company was ~ 147 (28 Jan, 2022), against the industry average of 21.3. Airtel’s Return On Capital Employed (ROCE) and Return on Equity (ROE) stood at 12.3% and –22.2%, respectively. Enterprise value is calculated at Rs. 432.6 crore. The stock CAGR for 10 years stands at 8%, while the one-year CAGR is recorded at 26% as of January 2022.
Business segments and breakups
The company holds a 30.35% share in the mobile telecom market, while the market share in broadband is currently 26.12% (as of Oct 2021).
Revenue breakup at Airtel shows that the Mobile segment for the company occupied the largest share, at 80.8%, while Business, Digital TV, and Home bring in 12.2%, 3%, and 2.3%, respectively.
Airtel’s India operations accounted for 68.8% of their business, followed by Africa at 27.7%. South Asia and others collectively contributed 3.5%.
For broadband
- No. of subscribers stood at 210.1 million, with ARPU (Average revenue per user) recorded at Rs. 661 (as of Sept 2021)
Financial services
- Airtel money – Monthly transaction value per subscriber stood at ~Rs 16,125, and the ARPU came at ~ Rs. 135 (as of Sept 2021).
Mobile
- ARPU came at Rs 153 (against JIO’s Rs. 151), while number of subscribers stood at 355.3 million
- Monthly data usage per user was recorded at 18.62 GB
Google-Airtel Deal: The takeaway
The telecom sector has been in the eye of the storm, owing to the Vodafone fiasco and spectrum and AGR dues. Airtel’s arch-rival JIO is disrupting the market quicker than anticipated after it initiated a mobile revolution with its low-cost tariffs, and has now announced the launch of JIO-brand smartphones. With the 5G roll-out soon to be a reality in India too, it would be interesting to find out how these telecom giants hold their cards. How JIO reacts to the partnership news between Google and Airtel could also be a space to watch out for.
With the new investment and strategic partnership with Google, can the Sunil Mittal-led Bharti Airtel pull the rug under JIO’s feet in this densely competitive space?
Watch this space!
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