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MOSL: BHARTI INFRATEL (Neutral)-Muted quarter- Growth hinges on telco’s capex intensity

BHARTI INFRATEL: Muted quarter; Growth hinges on telco’s capex intensity

(BHIN IN, Mkt Cap USD7.1b, CMP INR271, TP INR290, 7% Upside, Neutral)

 

• Tenancy exits continue: BHIN reported muted performance witnessing continued negative net tenancies, pulled down by exits. Proforma consol. revenue/EBITDA declined 1% QoQ to INR36b/14.9b (4% miss) led by flat rental revenue at INR21b. Rental EBITDA fell 4% QoQ on increasing opex, dragging rental margins by 280bp. Energy EBITDA witnessed a strong 30% QoQ jump due to seasonality, which should cool off next quarter. PAT at INR6.1b declined 6% QoQ (-5% YoY, 14% miss) due to EBITDA de-growth and lower net finance income. For FY19, revenue/EBITDA grew 1%/-6% YoY, while PAT was flat YoY.
• Concall highlights: (1) Merger of BHIN-Indus is on track. Expect completion over the next few months, (2) Most exits from VIL have come in; adopting a wait-and-watch approach in case there are more, (3) Management indicated that it is witnessing an uptick in gross tower additions.
• Growth hinges on telco’s capex intensity: BHIN continued to report net tenancy deletions. Management indicated that majority of exits are behind and investment in data network rollout should accelerate tenancy additions. We remain cautious on the long- term growth sustainability of the company given (a) the change in India’s telecom market structure, which could have a bearing on BHIN’s customer stickiness, (b) RJio’s priority towards its recently carved out tower and fiber SPV, and (c) lack of clarity on the long-term sustainability of its key customer base. We have marginally tweaked our revenue/EBITDA est. for FY20/21, which in turn has led to 8-9% cut in PAT estimates on a low base; expect 1%/-3% revenue/EBITDA CAGR over FY19-21.