With Nigeria freeing up its currency that was pegged at 197 to USD until June 20, 2016, our interactions with Africa industry personnel suggest 50% depreciation in the foreseeable future.
With Nigeria freeing up its currency that was pegged at 197 to USD until June 20, 2016, our interactions with Africa industry personnel suggest 50% depreciation in the foreseeable future. Bharti derives 7% of its consolidated EBITDA from Nigeria, and we build 50% currency fall into our model, which results in 2%/2.5% cut in consolidated EBITDA estimates for FY17/18 (PAT cut 8%). We also estimate `11 billion balance sheet impact. At 7x multiple, PV/share impact comes to `18. The tower sale had resulted in FLOs denominated in USD, which reduced finance costs and reduced PBT losses in Africa. But with Naira depreciation impacting profitability in the near term, the timeframe for PAT breakeven in Africa has been stretched out further. Our new TP is `416. We recommend buy.
We estimate that Nigeria contributes 7% to consolidated EBITDA. We build in 50% depreciation of the Naira vs. USD, which results in 2.3% consolidated EBITDA impact. Further, Nigeria opco also has USD denominated finance lease obligations (FLO) worth $500million. On depreciation of Naira, assets and liabilities of the Nigeria opco other than USD denominated debt ($500 million) would be restated in USD terms. Based on this, we calculate the balance sheet impact at $167 million. At 7x EBITDA and the above mentioned one-time impact, PV per share impact comes to `18.