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MOSL: BHARTI INFRATEL (Buy)-Healthy tenancy outlook to support growth-Consolidated EBITDA growth of 6% QoQ

​Bharti Infratel: Healthy tenancy outlook to support growth; Consolidated EBITDA growth of 6% QoQ better than expected

(BHIN IN, Mkt Cap USD9.6b, CMP INR365, TP INR435, 19% Upside, Buy)

• High tenancy adds, energy margin drive EBITDA: Bharti Infratel (BHIN) reported healthy and broadly in-line results. Consolidated revenue grew 11% YoY (+4% QoQ) to INR35.2b (in-line). Rental revenue remained steady at INR21.8b (+7% YoY, +3% QoQ). BHIN sustained a healthy tenancy addition run-rate after peaking at 6,139 in 3QFY17; 1HFY17 average was meager ~1,900. EBITDA rose 9% YoY (+6% QoQ) to INR15.7b, exceeding our estimate of INR15.2b by 3%, due to better EBITDA margin. Consolidated EBITDA margin expanded ~110bp QoQ to 44.7% (~120bp beat), led by a 325bp jump in energy margin to 10.7%. Rental margin at 65.7% was flat QoQ, but contracted 40bp YoY (in-line). PAT of INR6b fell 17% YoY (-4% QoQ), with fluctuations in mark-to-market investment value impacting finance income.
  
• Expect healthy tenancy growth: Over next four quarters, we expect steady tenancy additions of ~4,300, led by 4G-led extensive data rollout post spectrum auction in 2QFY17. One of the key headwinds of tenancy renewals has been behind. However, the rental freeze provided to old tenants should keep the tenancy rate increase subdued at ~1% annually over FY18E/FY19E. We expect revenue/EBITDA CAGR of 10% over FY17-19, backed by ~7% tenancy growth. We expect EBITDA margin to marginally shrink by 30bp to 43.6% over FY17-19E, given moderate improvement in tenancy rates. This is owing to the rental freeze for partial tenancies.