Please note that I had limited time finding out the answers and I do not have access to any paid subscription or reports which could have thrown a more accurate results and analysis.
Without much ado, let us start.
1. Market Players-
Bangladesh market is comprised of 6 big players with top 3 accounting for 88% of the market. Almost all these companies have some foreign tie up to help them out with technology and funds. The following table shows the players and their subscriber base. (Data from Bangladesh Regulatory Authority)
From the above table, the percentage market share of Warid' Telecom appears pretty less. Now, lets add another data.
2. Average Growth
If we track when each of these mobile operators commenced their operations and combine that with number of subscribers, we should get following-
As can be seen, the top players had a first-mover advantage but if we track the average additions per month, Warid comes second to Grameen. This shows the potential that Warid has in terms of growth rate.
3. Betting on Bangladesh
This is interesting, as following table would show - Bangladesh market is under-penetrated and is bound to increase going forward. If it reaches the current level of mobile penetration for India (46%) in next 4 years, it would open up 23 mn more subscribers and at 20% market share for Warid, this should be 4.6 mn subscribers.
4. Calculating whether it makes sense for Bharti
Putting down assumptions as stated below, we arrive at NPV for this aquisition-
As can be seen, since this is positive NPV, so it is right decission for Bharti.
Most of the M&A analysis is about getting the assumptions right. Would love to hear from readers on the assumptions made.
Besides this there are multiple synergy factors which have not been taken into account in the analysis above-
1. Bangladesh' mobile market is similar to Indian market in terms of customer preference, demography etc. It would be relatively easier for an Indian company like Bharti to make a growth plan similar to the one they charted for India in Bangladesh.
2. Singtel has stake in both Bharti and Bangladesh Telecom. So there should be some synergy there as well.
3. Bharti would be able to leverage its existing set of suppliers viz Nokia, Siemens for better deals compared to existing players in Bangladesh.
Indeed a very Good Ananlysis Amrit. One thing considering in next 4 years Warid would capture 20% market shares compared to today's 6% market share is too optimistic? If we consider Warid has a higer avg additions per month, this average is also depending upon the current market share which is lower in Warid's case. It means if a subsciber subscribes GP and another subscribes Warid, then average addition figure in terms of GP will be much lower then as of Warid's. Aagain, thanks for a very good analysis. -Neeraj
ReplyDeleteThanks for your comments Neeraj.
ReplyDeleteThe average addition figure is 0.1 mn per month which is an absolute number which translates to 1.2 mn each year and 4.8 mn in 4 years at their current rate. Now with Bharti coming in they should have a better technology ( I have read Warid already has New Generation Technology NGN which by far is best in B'gdesh telecom) and smart marketing (from their Indian experience), Warid should increase this 4.8 mn number and capture a significant market.
- Amrit
Good one Amrit! Great analysis.
ReplyDeleteMy two cents -
1. The assumption that the ARPU will continue to grow at a constant rate of 4%. Going by the Indian experience, the ARPU has been gradually reducing with the increase in penetration. As per the recent TRAI report the ARPU for GSM in India declined by 11.3% from Rs 185 in QE Jun 09 to Rs 164 in QE Sep 09.
2. With an increase in competition from numerous players, the profitability may also decrease (read tariff wars and 1p/sec billing). This has been true for the Indian context and may turn out to be true for Bangladesh also
Cheers
Rohit
Thanks Rohit. You made good points. Though the numbers still support the deal as in foll. points-
ReplyDelete1. Even if the current ARPU of 2.1 USD were to remain constant for 10 year period, the NPV stands at 464.2 mn USD.
2. Assuming a constant profitability ratio of 10% to revenue and constant 2.1 USD ARPU, the NPV still stands at 394.3 mn USD.
The key factor is is maintaining the increase in number of customers at the current rate of growth.