FREE

MOSL: BHARTI INFRATEL (Neutral)-Voda-Idea tenancy exits cause pain; Outlook hinges on incumbents’ growth

Bharti Infratel: Voda-Idea tenancy exits cause pain; Outlook hinges on incumbents’ growth

(BHIN IN, Mkt Cap USD6.7b, CMP INR265, TP INR275, 4% Upside, Neutral)

 

• Rental segment drags consol. EBITDA: Rental revenue declined 4% QoQ to INR21.2b due to steep tenancy cuts (led particularly by Vodafone-Idea). However, Energy revenue increased 5% QoQ to INR15.5b, providing support to pro forma consol. revenue, which came in flat QoQ at INR36.7b (in-line). Consol. EBITDA declined 2% QoQ to INR14.9b (in-line), dragged by Rental EBITDA (-6% QoQ), partly offset by doubling of Energy EBITDA. Consol. EBITDA margin contracted 85bp QoQ to 40.5%. Adj. PAT declined 3% QoQ to INR6.2b (in-line). 1HFY19 performance: Revenue grew 2% YoY, but EBITDA/adj. PAT declined 6%/3% YoY in 1HFY19. EBITDA margin contracted 350bp YoY to 40.9%. For 2HFY19, we expect revenue/EBITDA/adj. PAT to decline 3%/20%/24% YoY.
• Vod-Idea network rationalization hurts tenancy: Net co-locations fell 26,266 (-13% QoQ) due to 27,769 tenancy exits (mainly dominated by Vodafone-Idea) v/s meager 1,503 gross adds. Rental EBITDA fell 6% QoQ to INR13.7b, partly offset by a 4% QoQ uptick in rental sharing and revenue from discontinued tenants (4,225); margin shrank 140bp QoQ to 66.7%. Energy EBITDA doubled QoQ to INR1.1b; margin expanded 350bp QoQ to 7.2%, led by a spurt in revenue.
• Concall highlights: (1) Vodafone-Idea is required to pay colocation exit fees of INR15b (including both cash and future business commitments). Management plans to finalize the terms by this quarter-end. (2) Merger of Indus and Bharti Infratel should be completed by March’19.