Buy Bharti Infratel; target of Rs 480: Motilal Oswal

Motilal Oswal's research report on Bharti Infratel

BHIN reported healthy 1QFY18 results. Although consolidated revenue of INR35.2b (+10% YoY, flat QoQ) missed estimate by 2%, consolidated EBITDA of INR15.8b (+12.9% YoY, +0.2% QoQ) exceeded estimate by 2.8% due to better-than-expected rental EBITDA (+11.7% YoY, +5.5% QoQ to INR15.2b). Consolidated rental revenue remained steady at INR22.6b (+9.8% YoY, +3.5% QoQ). Energy EBITDA rose 54% YoY, but declined 56% sequentially to INR600m due to seasonality. Energy margin of 4.7% expanded 140bp YoY (-550bp QoQ). PAT declined 12.2% YoY (+11.3% QoQ) to INR6.6b, largely affected by interest fluctuations and higher effective tax.

Outlook

We maintain Buy (SOTP/DCF-based) with a revised target price of INR480. With 10% EBITDA CAGR over FY17-19E, BHIN trades at EV/EBITDA of 9.7x on FY19E. The stock garners over 25% RoIC, and investment in Indus should also improve RoCE. BHIN offers ~4-5% FCF, which may offer additional support to the stock.