MOSL: BHARTI INFRATEL (Neutral)-Colocation exits may put pressure on growth

​Bharti Infratel: Colocation exits may put pressure on growth

(BHIN IN, Mkt Cap USD12.6b, CMP INR442, TP INR440, 1% Downside, Neutral)

• Rental revenue/EBITDA disappoints: Consol. revenue increased 3.5% QoQ (+11% YoY) to INR36.5b (in-line), despite flat QoQ rental revenue (at INR22.6b; 1% miss), offset by a 9% QoQ rise in energy revenue. Consol. EBITDA rose 2.5% QoQ (+11% YoY) to INR16.1b (in-line), with the margin down ~40bp QoQ at 44.3% (40bp miss). This was led by rental EBITDA decline of 2% QoQ to INR14.9b, offset by nearly doubling of energy EBITDA. Lower finance income pulled down PAT by 4% QoQ to INR6.4b.
• High exits hurt colocation growth: Gross colocation addition of 4,398 was overshadowed by 2,711 tenancy exits (possibly from RCOM 2G wireless shutdown), pulling down net adds to 16,87. This resulted in a meager 1% QoQ growth in consol. colocations to 220,088, with total towers of 90,955 (avg. sharing at 2.41x). Additionally, tenancy rates reduced 2% QoQ, resulting in flat rental revenues. The decline in rental EBITDA of 2% QoQ was led by a 20% jump in other expenses in both standalone and Indus.
• Consolidation in telecom sector to hurt tenancy adds: We expect tenancy adds of 8,580/14,400 in 2HFY18/FY19, factoring in 8% rental revenue growth in FY17-19E. However, this could see pressure as smaller operators exit the telecom market, estimated to contribute ~10% of the total 220,088 colocations, i.e. ~20,000 tenancies over the next 6-8 quarters. Also, the risk of tenancy cut from the Vodafone-Idea merger exists. We marginally lower EBITDA estimate by 2% on rental EBITDA cut, estimating 8% EBITDA CAGR over FY17-19E.