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MOSL: BHARTI INFRATEL (Buy)-Growth outlook remains upbeat-Rental EBITDA up 5.5% QoQ

​Bharti Infratel: Growth outlook remains upbeat; Rental EBITDA up 5.5% QoQ, ahead of expectation

(BHIN IN, Mkt Cap USD12.3b, CMP INR417, TP INR480, 15% Upside, Buy)

• Healthy tenancy adds aid earnings growth: BHIN reported healthy 1QFY18 results. Although consolidated revenue of INR35.2b (+10% YoY, flat QoQ) missed estimate by 2%, consolidated EBITDA of INR15.8b (+12.9% YoY, +0.2% QoQ) exceeded estimate by 2.8% due to better-than-expected rental EBITDA (+11.7% YoY, +5.5% QoQ to INR15.2b). Consolidated rental revenue remained steady at INR22.6b (+9.8% YoY, +3.5% QoQ). Energy EBITDA rose 54% YoY, but declined 56% sequentially to INR600m due to seasonality. Energy margin of 4.7% expanded 140bp YoY (-550bp QoQ). PAT declined 12.2% YoY (+11.3% QoQ) to INR6.6b, largely affected by interest fluctuations and higher effective tax.
• Buoyancy in tenancy should continue: Tenancy additions should remain high over the next 4-6 quarters, with RJio and Bharti expected to continue data network expansion. Beyond that period, we believe that the ratio of tenancy addition to cell site addition of 1:4 should improve, as a higher proportion of sites will be deployed independently instead of loading on existing 2G sites. This should keep co-location adds steady. In our view, the risk of rental freeze is largely behind, while that of single RAN technology hurting loading revenues is overblown. We estimate Vodafone-Idea merger impact to be ~15% of EBITDA. The opportunity to increase Indus stake provides a healthy cash deployment source and should improve RoCE.