Goodbye to Mobile
The sale to Bharti marks the end of Tata’s telecom dreams…
With Tata Tele sealing the sale of its mobile telephony business to Bharti, it marks the end of the Tata group’s long stint with mobile telecom. The mobile business was always a non-starter and never added value for its shareholders. Even the deal with DoCoMo of Japan tried to disrupt the market with unit pricing but it only worsened the losses for the company. In a way, this marks the exit of the Tata group from the mobile business altogether.
How is the deal structured…?
Interestingly, the deal is a no-debt and no-cash deal for Bharti. The Tata group will be transferring its mobile business to Bharti Airtel effective November 01st at no consideration. The existing debt of Rs.30,000 crore in the books will be taken over by Tata Sons and eventually defrayed against the remaining businesses. Bharti will take a portion of the spectrum liability of Tata Tele, which could be around Rs.3000 crore. It needs to be remembered that Tata Tele is only transferring the mobile telephony business. The enterprise business, the fixed line business and the broadband segment still stays with the Tatas. Tata Tele had made a net loss of over Rs.4600 crore in the fiscal year ended March 2017. It has accumulated losses in excess of Rs.31,000 crore and that literally wipes out the entire asset base of the company. The deal at no cost, in a way is logical as the company is anyways quoting at negative EV.
What is in it for Bharti Airtel?
Prima facie, it will increase the customer base of Bharti by 15% by adding another 4 crore customers to Bharti’s kitty. But the ARPUs of Tata Tele at Rs.164/user is much lower than that of Bharti. Reliance Jio is already talking of an ARPU closer to Rs.300/month and thus the merger will reduce Bharti’s competitiveness vis-à-vis the biggest competition in the form of Jio. But the big gain for Bharti will be in terms of market share. In terms of revenue market share, Bharti will now come very close to the merged entity that will be formed by Vodafone and Idea. Overall, the outcome of the merger could, at best, be neutral for Bharti.
Global Liquidity
Liquidity could be the big challenge in the coming year…
In a world that is obsessed with a plethora of problems ranging from slow growth to weak inflation to a highly intransigent North Korea, there is a hidden problem that could be lurking in the corners. In the year 2018, global liquidity could be the big story to watch out for.
Lehman story in reverse…
Back in 2008 when Lehman brought the global financial markets to the brink, the central banks had only one choice. They had to infuse liquidity in abundance so that the sheer power of liquidity would support asset prices. That is exactly what happened as global asset classes rebounded to pre-crisis levels, despite no visible growth. The reason was liquidity. So, how did central banks infuse liquidity into the system? They did so by buying all kinds of securities from the market. When the central bank buys securities, it builds its own securities portfolio and in the process infuses liquidity into the financial system. It is this induced liquidity that has kept markets and assets prices buoyant in the last 9 years. The US Fed took its bond portfolio from $1 trillion in 2008 to $4.5 trillion in 2017. The US Fed was not alone. The Bank of Japan and the ECB have also created bond portfolios of equivalent amount. Bank of England has also created a portfolio of close to $2 trillion. With inflation going up and growth returning, it is time to reverse the process. That is the worry!
GST on Realty
It is coming soon and it could be for the better…
When the GST was implemented on July 2017 some specific categories like alcohol, petrol, diesel, petrol products and real estate were deliberately kept out of the GST ambit. They continue to be regulated by a mix of respective state and central regulations making them fairly hybrid. Recently,
the FM had announced the intent of the government to move real estate also under the ambit of GST. So what exactly could that mean for buyers and sellers?
A complex tax scenario…
The current system of taxing real estate is fair complex and the entire process is quite complicated and opaque from a customer perspective. Currently, there are multiple levels of taxation in a real estate transaction. For example, under construction properties are anyways being subject to the extant rates of GST and hence for them migration is not a problem. Otherwise, there is a registration and then there is the stamp duty, which varies from state to state. Currently, the total tax impost on the end customer comes to around 18% when the registration and the stamp duties are added up. Thus in terms of the burden it may not be too much of a difference on the customer. But the real challenge for the government will be taking the states on board. Stamp duty is a huge source of revenue for states and the centre compensating states for the loss of revenues may not exactly be practical or feasible.
