Bharti Infratel's Q4FY18 results (Outperformer) - Weak operating metrics cloud outlook
Q4FY18 result highlights
- Financial performance better than estimates: Reported revenue was up 0.2% qoq and +4% yoy to Rs36.62 bn (IDFCe: Rs.35.4 Bn) led by +5.8%/10.4% qoq/yoy increase in energy re-imbursements. Core rental revenues were down -3.3% qoq at Rs21.8 bn (IDFCe: Rs.21.3bn). EBITDA at Rs 15.9bn (IDFCe:Rs. 14.7bn) bn was down 0.4% qoq & 1.3% yoy and margins decreased by 24bp qoq to 43.5% (IDFCe : 41.8%). EBITDA margins (ex- of energy) decreased by -99bps qoq at 65.5% ahead of our estimate of 64.0% for the quarter. PAT at Rs 6.06 bn (IDFCe:Rs.6.76 bn) was up ~3.5% qoq & +1.6% yoy led by higher other income. EPS was at Rs. 3.28 for Q4FY18 (IDFCe: Rs.3.66) +3.6% qoq, +1.5% yoy.
- Key takeaways from conference call: Infratel has seen a consolidated tenancy decline of 22,134 through FY18 which weighed on performance. This more or less factors the exit of marginal operators (except Uninor). Management indicated that Vodafone-Idea merger impact on tenancy is still not known as integration details aren’t known yet, but could be in the range of 20-25k tenancies over a period. There is no update on the Indus-Infratel transaction.
- Cash generation remains strong, downside limited: Balance sheet remains healthy with Rs51.7bn in net cash, with CFO of Rs10bn per quarter (Q4FY18) and BHIN is distributing 100% of EPS as dividend – implying a yield of 4.2%.
Key positives: Margin and cash flow performance
Key negatives: Decline in tenancies.
Change in estimates: Cut EBITDA estimates by 2% for FY19-FY20E
Valuations & view
BHIN reported a soft quarter with better than expected P&L performance but weak underlying operating metrics. We think that stock is factoring in tenancy reduction (~20K) due to impending Vodafone-Idea merger. We believe that roll-out of 4G coverage and capacity build by incumbents can drive BHIN back to growth in FY20. We value BHIN on DCF basis to arrive at our Mar 2019 TP of Rs370 (unchanged). Retain Outperformer.
Bharti Infratel provides telecom tower infrastructure in India. Co. acquires, builds, owns, operates, and manages towers and related infrastructure for wireless telecommunications service providers. As of Mar 31 2014, Co. owned and operated 83,368 towers and 167,202 co-locations in 22 telecommunication circles.
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