Buy Bharti Infratel; target of Rs 450: ICICIdirect.com

ICICIdirect.com 's report on Bharti Infratel

“Bharti Infratel (BIL) was incorporated in 2006 as a subsidiary of Bharti Airtel, which is, in turn, a part of the Bharti Group. BIL plays the role of a telecom tower infrastructure service provider that deploys, owns and manages telecom towers and communication structures, for various mobile operators. In January 2008, Bharti Airtel transferred its tower assets to Bharti Infratel through a scheme of arrangement effective as of January 31, 2008. On a standalone basis, the company has about 36747 towers as on date spread across 11 circles. BIL also has a 42% stake in Indus Towers, which is a joint venture between Bharti Airtel, Idea and Vodafone for passive infrastructure sharing. On a consolidated basis, with the Indus stake, BIL has emerged as the largest telecom tower company in India with a tower portfolio of 85064 towers and a pan-India presence. The company enjoys the competitive advantage of a very strong clientele with Bharti Airtel, Idea and Vodafone forming about ~70% of the total telecom market share as its anchor tenants.”

“BIL registered 7.0% CAGR in revenues in FY12-14 at the consolidated level, aided by 6% CAGR in total co-locations to 167202 and 3% CAGR in tower growth to 83368 towers over the same time period. At the standalone level, the company reported faster growth in both towers and tenancy at 7.0% and 4.0% CAGR in FY12-14 to 35905 and 69137, respectively. Indus Towers reported tower and tenancy growth of 5.0% and 2.0% CAGR to 113008 towers and 233488 co-locations, respectively, in FY12-14. Revenues also continued to be aided by the loading factor, which was enhanced by additional 3G BTS in the same. Currently, 30% of BIL towers attract loading revenues. According to our estimates, this comes to about | 184 crore (FY14).”

“Bharti Infratel is in a sweet spot with widest tower coverage and an impending data boom, necessitating higher tower requirements and tenancies. With 10.3% growth in tenancies, from 167202 in FY14 to 224585 in FY17E, the company is expected to witness 13.2% CAGR in EBITDA. Currently, the stock is trading at FY17E EV/tower valuation of | 76 lakh and EV/EBITDA of 10.8x. Tower companies globally trade at higher EV/EBITDA multiple of 16.1x given higher tenancies and margin profile. With increasing tenancies, as EBITDA margins for BIL approach global levels, we believe the discount to international players would reduce. Owing to the low risk profile coupled with the high probability of growth and stable dividend policy, we initiate coverage with a BUY rating with a target price of | 450 based on SOTP DCF based methodology”, says ICICIdirect.com’s research report.

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