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MOSL: BHARTI INFRATEL (Neutral)-Healthy tenancy rates-uncertainty looms over growth

BHARTI INFRATEL: Healthy tenancy rates; uncertainty looms over growth

(BHIN IN, Mkt Cap USD7b, CMP INR262, TP INR290, 11% Upside, Neutral)

 

• Strong 6% rental EBITDA Jump: Bharti Infratel reported healthy 1QFY20 results, beating our estimates. On pre IND-AS 116 basis, Proforma consol. revenue/EBITDA grew 1% QoQ to INR36.3b/INR15b (4% beat). A key surprise was the rental revenue growth of 4% QoQ to INR21.8b, driven by 6% jump in the rental yield. Subsequently, rental EBITDA grew 6% QoQ to INR14.2b with 60bp margin improvement. Adjusted for IND-AS 116, PAT was up INR8.9b, up 39% QoQ (38% beat), on healthy PBT coupled with INR1.8b reversal of DTA from JV.
• Concall highlights: (a) Large part of the exits are now behind, including Vodafone Idea (VIL); gross adds have moderated as VIL is still in the process of merger integration. (b) Don’t see risk from RJio as it may not provide lower rental rates to peers and dilute its competitive position. (c) Merger with Indus to conclude in Aug’19.
• Uncertain growth outlook: BHIN has surprised us with flat revenue/EBITDA in the last five quarters (4QFY18-4QFY19) despite cuts in tenancy to the tune of 37k as rental rates improved. Yet we believe there is uncertainty towards future tenancy growth as telcos indicate slowing capex and peers like ATC, RJio’s towerco are gaining ground. Adjusted for IND-AS 116, the PAT has been revised up 30% for FY20/21E. On LTL PAT is revised up 3-4%.
• Valuation and view: We maintain Neutral with TP of INR290, implying EV/tenancy of INR3m and EV/tower of INR6.7m for FY21. But the stock is trading at 6x FY20/FY21E EBITDA with ~6% dividend yield, which should provide a floor for any downside risk.