Bharti Infratel up 6%; CLSA upgrades to buy as risks overdone

It says DCF (discounted cash flow method) analysis reveals that Infratel's current stock price is factoring in a one-time tenancy impact of 68,000 sites for Indus Towers and Infratel and zero tower and tenancy additions beyond FY19.

A tenancy hit of 68,000 is possible only if Idea-Vodafone reduces their combined sites by 35 percent (96,000) and Bharti Airtel decides to shut all of Telenor's 25,000 sites. This is a pessimistic scenario, he says.

In its base case for upgrading the stock, CLSA estimates around 25 percent of Idea-Vodafone's sites, i.e. 66,000, are likely to have an overlap and 50 percent of these could be decommissioned. It estimates such site rationalisation could lead to a loss of 14,000 tenancies for Indus Towers and 4,000 tenancies for Infratel.

For the Bharti-Telenor deal, it estimates that 40 percent of Telenor's sites could be decommissioned resulting in loss of 5,000 tenancies for Indus and 1,000 tenancies for Infratel. Beyond the one-time hit, CLSA estimates that Infratel could add about 16,000 tenancies annually (against 17,300 additions in 9MFY17) as there would still be three large operators expanding operations in India mobile.

Meanwhile, Bharti Infratel has been seeking M&A to optimise its capital structure and boost growth.

The potential Vodafone-Idea merger could pave the way for Infratel to acquire not only the towers owned by Idea and Vodafone but also add to its 42 percent stake in Indus Towers by seeking the 11 percent stake held by Idea and 42 percent held by Vodafone, CLSA feels.

Bharti Group's Bharti Infratel owns and operates 90,255 towers across India, including 51,258 towers from Indus Towers joint venture, wherein it holds 42 percent stake while Vodafone holds 42 percent and Aditya Birla Telecom (Idea Cellular) has 16 percent stake.

At 12:52 hours IST, the stock was quoting at Rs 306.35, up Rs 16.45, or 5.67 percent on the BSE.Posted by Sunil Shankar Matkar