Singtel's domestic market could shrink with its recent overseas deal

Two-thirds of its net profit will come from overseas markets.

With Singtel's maneuver to deepen its presence by boosting stakes in Thailand's InTouch Holdings and India's Bharti Telecom, the telecommunications company may soon see its domestic market declining.

According to BMI Research, the approaching saturation will affect Singtel's income statement over the longer term, with domestic market generating around 28-29% of profit for the company.

"However, over-relying on its smallest market by population is unlikely to produce sustained revenue growth, and Singtel has therefore established a healthy income mix with more than two-thirds of its net profits from overseas markets," the report explained.

BMI noted that Singtel's market in the city-state and Australia has already been steadily on the decline, falling from 53.9% in Q1FY16 to 46.0% in Q1FY17.

Singtel will raise its stakes in Airtel and Advanced Info Services (AIS) by acquiring shares from the Temasek Holdings. With a total value of $2.47 billion, the deal is expected to be completed by December 2016.

The deal will raise Singtel's participation in Bharti Telecom from 39.8 to 47.1 %. It will also raise Singtel's stake in AIS to 31.8%

Meanwhile, BMI said the actual financial benefits of Singtel's deal may only be realised over the longer-term, as risks still exist on the part of InTouch's AIS and Bharti Telecom's Airtel.

“AIS is still paying the hefty price for its LTE spectrum, and we expect Airtel to actively participate in India's upcoming spectrum auction in order to retain its leading market position,” BMI expounded

“Meanwhile, Airtel's Africa and South Asia units have continuously drawn net losses, and the impact of divestitures and mergers of unprofitable operations may not reflect on its financial statements until the end of the financial year,” it added.