Market Insight

Airtel Africa's growth continues offsetting losses of parent company

September 30, 2019  | Subscribers Only

Bashir Ali Bashir Ali Research Analyst, Service Providers and Platforms
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The continued growth of Airtel Africa has led Bharti Airtel to consider an IPO of its Airtel Africa unit partly as a way of recouping funds and to reduce the parent company’s debts. According to Raghunath Mandava, the CEO of Airtel Africa, a successful IPO would enable Airtel Africa to kickstart a “stronger growth phase”. Airtel Africa has long identified the London Stock Exchange (LSE) as the perfect venue for its long-awaited IPO. Airtel Africa launched its IPO concurrently on the LSE and the Nigerian Stock Exchange on Friday 28th June 2019. Airtel Africa listed 19% of its shares and despite high expectations, Airtel Africa’s debut on the LSE was underwhelming with shares dropping as much as 15%, thereby shaving £500 million from its opening valuation. As such, this gave Airtel Africa a market capitalization of £2.6 billion which was much lower than anticipated by the operator. Nevertheless, Airtel Africa was still able to raise around £595 million through the offering and Airtel Africa’s CEO announced that he was “delighted by the strong response” of the offering. 


Airtel Africa operations:

In 2010, Bharti Airtel acquired the Zain Group’s Africa operations for a value of $10.7 billion. Since then, Airtel Africa has grown to become the continent’s second largest mobile operator by active subscribers after MTN Group. Airtel Africa operates in 14 African countries with a strong presence in major markets such as Nigeria, Kenya, Tanzania and Ghana. Airtel Africa’s overall customer base currently stands at 100 million with annual net additions of around 10 million subscribers per annum showing continued growth potential. Throughout the past year, Airtel Africa has modernized its network to cater to data coverage and capacity requirements. With this modernization, Airtel Africa now offers 4G data services for consumers in 11 of its 14 African markets. This is crucial because Airtel Africa has been able to tap into demographic characteristics in its African markets to grow data usage and data revenues among customers. Airtel Africa’s data customers increased from 24.9 million in March 2018 to 30.0 million in March 2019. As such, data customers now represent 30.4% of the total customer base for Airtel Africa. The average data usage per customer for Airtel Africa users has grown consistently indicating that there is room for growth in the demand for data services. Quarterly revenues of $781 million were essentially static with the prior quarter but up by 6.2% year-on-year. 

Moreover, Airtel Africa’s annual revenue stood at $3.077 billion in March 2019, a 6% increase on the previous year. Airtel Africa’s revenue increase is driven mainly by growth in data usage & Airtel Money penetration among Airtel Africa’s users. Africa’s demographics is such that around 70% of the overall population is under 35 and technologically savvy with widespread use of mobile money. For instance, Airtel Africa has 14.2 million mobile money customers which is expected to grow substantially.  As such, observers expect Airtel Africa will continue to see sustained growth in its data revenues as well as Airtel Money penetration among customers, throughout the continent. 


Future risks for Airtel Africa:

As is often the case in emerging markets the key sources of risk are regulatory, political and market risks. An issue that may affect Airtel Africa’s future performance is the role played by partners and particularly partner governments. For instance, in November 2018, the Tanzanian government (which owns a 40% stake in Airtel Tanzania) outlined that it does not recognize the IPO plans of Airtel Africa. Tanzania’s government also stated that it intends to enter further negotiations between it and parent company, Bharti Airtel over Airtel Tanzania’s ownership structure. To resolve this standoff, in January 2019, Bharti Airtel agreed to transfer a 9% stake in Airtel Tanzania to the Tanzanian government to settle the ownership dispute. This then served to lower Bharti Airtel’s stake in Airtel Tanzania from 60% to 51%. Such scenarios highlight one of the risks facing Airtel Africa, namely the danger that some of Airtel Africa’s joint venture partners may seek to renegotiate terms in the same way the Tanzanian government did. In turn, this can have serious repercussions on the future performance of Airtel Africa vis-à-vis its share price and future activities. 

Research by Market
Mobile & Telecom
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