Etisalat considers M&A activity in “fragmented markets”

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In a presentation to market analysts, Etisalat has revealed plans to consolidate its smaller assets in “fragmented markets” through mergers, acquisitions or asset sales and also record up to 5 percent revenue growth in 2013.

The Gulf’s second largest telecom operator is expecting to earn revenues of an estimated USD 9.4 billion in 2013. The company currently operates in 15 countries across the Middle East, Africa and Asia. In recent years, it has suffered a slump in profitability as a result of write downs valued at USD 1.6 billion on troubled foreign units, while tougher competition in all markets has squeezed profitability. Etisalat’s 2012 profit of USD 1.84 billion) was 24 percent lower than its peak in the year 2009. However, the company’s revenue has increased steadily and reached a record high of USD 8.97 billion last year.

Although the company did not precisely forecast its profit, it warned the analysts that margins will come under further pressure. The telecom operator expects earnings before interest, tax, depreciation and amortization (EBITDA) to be 49-51 percent of revenue this year, compared with 51 percent in 2012. The capital expenditure is also expected to be 14-16 percent of revenue.

While Etisalat did not confirm the name of markets for consolidation of its operations through sale, merger or acquisitions, these may include low income African markets. Company performance in these markets is marred by high capital expenditure costs, lack of security, power and other infrastructure. It may also pursue opportunities to acquire other prominent players in other markets, which are cash generative and have the potential to grab a major market share. Etisalat may avoid buying new ‘greenfield’ licenses after its failed entry in the Indian market. It had spent more than USD 1 billion on market entry and was also hit by USD 827 million impairment charges.

The telecom operator also stated that it was also keen on increasing stakes in core operations, “subject to feasibility and economic viability”.


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