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MOSL: BHARTI INFRATEL (Neutral)-Exit overhang largely behind-Impact expected to be less severe now

Bharti Infratel: Exit overhang largely behind; Impact expected to be less severe now

(BHIN IN, Mkt Cap USD7.0b, CMP INR271, TP INR290, 7% Upside, Neutral)

 

• Bharti Infratel (BHIN) has received a notice from Vodafone-Idea for exit of 27,447 co-locations on a consolidated basis. Management indicated that this should lead to a net reduction in monthly rental revenue by INR600-650m on a consolidated basis. This implies a likely decline of 9%/13% in rental revenue/EBITDA.
• The impact, however, is likely to be less severe than our expectation – we were forecasting a net reduction of ~INR970m per month (i.e. a likely decline of 14%/20% in revenue/EBITDA – not built in our estimates). Higher loading revenue and an upward revision in rentals (due to tenancy cuts) will contribute to limiting the impact.
• We cut consolidated revenue/EBITDA by 4%/11% for FY19 and by 7%/18% for FY20 as we build in the impact of tenancy cuts.
• We believe that the stock should now start gaining momentum, given that a fair level of clarity has emerged on tenancy cuts and that the top three telcos are likely to increase their focus on network expansion. We have revised down our target price to INR290 (prior: INR305), implying EV/tenancy of INR2.9m, EV/tower of INR5.6m and EV/EBITDA of 9.1x on FY20.