MOSL: BHARTI INFRATEL (Neutral)- Bharti Infratel, Indus merger to produce a tower behemoth
Bharti Infratel: Bharti Infratel, Indus merger to produce a tower behemoth
(BHIN IN, Mkt Cap USD9.4b, CMP INR326, TP INR346, 6% Upside, Neutral)
- Bharti Infratel (BHIN) announced that it will merge with Indus Towers. Post the transaction, the merged entity is expected to be valued at an EV of INR926b. BHIN and Vodafone would hold 37.2% and 29.4%, respectively, in the combined entity. Other stakeholders Idea and Providence have an option to sell their 11.15% and 3.35% in Indus Towers for INR65b and INR19.6b, respectively.
- Indus Towers’ acquisition value is at a 14% discount to BHIN. Moreover, BHIN could benefit from an improved capital structure and RoCE, led by utilization of surplus cash for acquiring Idea and Providence’s stake.
- However, we see a risk of further pressure on BHIN’s EBITDA – beyond our estimate of a 7% decline – in FY19 on the back of tenancy exits. Moreover, concerns about excess industry supply remain.
- Against this cautious backdrop, we maintain our Neutral rating. Our DCF-based target price stands at INR346, implying EV/tenancy of INR2.7m
Bharti Infratel provides telecom tower infrastructure in India. Co. acquires, builds, owns, operates, and manages towers and related infrastructure for wireless telecommunications service providers. As of Mar 31 2014, Co. owned and operated 83,368 towers and 167,202 co-locations in 22 telecommunication circles.
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