GTL Infrastructure -Results in line with estimates:: Alchemy

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Results in line with estimates, but concerns
on leverage continue
GTL Infrastructure’s 2QFY11 results were in line with estimates. Revenue
increased 5.6% QoQ to `1,166mn and EBITDA grew 4.8% QoQ to `660mn. The
tower count increased to 13,746 (consolidated tower count was 31,246) and
tenancy increased to 1.25x (consolidated tenancy was 1.22x).


Revenue per tenant continue to decline
Rental revenue per tenant per month declined 3.2% QoQ and 15.7% YoY to `26,027.
This was partly because the tower mix is slowly shifting to RTT, but we believe that the
primary cause is due to pressure on rentals. (Please refer to our sector report on the
Indian tower sector, dated 13 October 2010, for a detailed analysis.)

Revenue and EBITDA grew QoQ; EBITDA margins decline marginally
Revenue grew 5.6% QoQ and 43.4% YoY to `1,166mn and EBITDA grew 4.8% QoQ
and 49.0% YoY to `660mn. On a consolidated basis, 2QFY11 revenues was `2,579mn
and EBITDA was `1,485mn. The EBITDA margin reduced marginally QoQ from 57% in
1QFY11 to 56.6% in 2QFY11.

Capex
The company plans to add ~4,000 towers in the year as Aircel rolls out its 3G network
and expand its 2G footprint. Accordingly, both Gross block and CWIP increased by
~`4bn from 4QFY10. The company has also indicated that it will need to add ~12,000-
13,000 towers to get the 20,000 extra tenancies committed by Aircel, against previous
guidance of ~6,000-7,000 towers, as the deal with RCOM was cancelled. We have
accounted this in our estimates.

Interest expense
Interest expense increased by a huge 47% QoQ against a decline of 15% in the last
quarter. We believe that this is due to a combination of higher debt (`49.4bn in 2QFY11
as against `44.7bn in 4QFY10) and a higher proportion of interest expense being passed
through the P&L rather than being capitalised.

Estimates revised downwards; maintain Reduce
We have revised our estimates after 2QFY11 numbers, primarily on account of updated
company guidance to add 13,000 towers (as against an initial estimate of 6,500 towers)
for getting an extra 20,000 tenancies committed by Aircel. We believe that FCCB’s will
be redeemed in November 2012 and tower rollouts will continue to put pressure on the
company in the form of higher debt. We maintain a Reduce rating on the stock with a
price target of `39 using a discounted cash flow (DCF) analysis.