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MOSL: BHARTI INFRATEL (Neutral)-Tenancy exits pull down rental revenue-expect the impact to aggravate

BHARTI INFRATEL: Tenancy exits pull down rental revenue; expect the impact to aggravate

(BHIN IN, Mkt Cap USD9.4b, CMP INR329, TP INR346, 5% Upside, Neutral)

 

• Subdued rental revenue stalls overall growth: revenue was flat QoQ (+4% YoY) at INR36.6b (2% beat). EBITDA, too, came in flat QoQ at INR15.9b (+1% YoY, 1% beat). Consol. margin shrunk ~25bp QoQ (120bp YoY) to 43.5% (15bp miss). Rental revenue declined 3% QoQ to INR21.9b; rental EBITDA declined 5% QoQ to INR14.3b (in-line) due to tenancy exits (potentially because of shutdowns by smaller telcos). This, however, was partly offset by 6% QoQ growth in energy revenue to INR14.8b, leading to a 68% QoQ jump in energy EBITDA to INR1.6b. Net finance income of INR827m led to a 4% QoQ (+2% YoY) jump in PAT to INR6b (10% miss).
• Continuous rise in tenancy exits…: 9,813 tenancy exits were recorded in 4Q (v/s 8,562 in 3QFY18) v/s a meager 1,983 gross adds, leading to a 4% QoQ fall in net co-locations to 2,05,596. This, along with flat QoQ tenancy rates of INR34,770, led to a 100bp QoQ contraction in rental EBITDA margin to 65.4%. Energy EBITDA margin expanded 400bp QoQ to 11%, led by strong revenue growth.
• …to hinder growth in FY19: We have cut our estimate for net tenancy adds to 0 (from ~11k) in FY19 due to 1) tenancy exits by smaller telcos closures/mergers and 2) Vodafone-Idea merger - managements have guided for 15-20% cut in cell sites, which could be partly offset by one-time penalties for tenancy exits. Subsequently, we have cut revenue/EBITDA for FY19/20E by 4%/7%. We expect FY19 revenue/EBITDA to decline by 0%/7%. However, in FY20, as the market stabilizes, strong data growth should increase site densification, leading to high tower/tenancy growth. We expect revenue/EBITDA to grow 5%/4%.