India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel
Rs339.10 - OUTPERFORM
Tower signals
The first-phase rollout of 3G services should enhance loading of existing
2G towers and will consequently be reflected in improving rentals.
Rentals at Indus Tower, one of Bharti’s tower firms, have risen 21% YoY.
We value the independent entities of Indus at US$7.8bn and Bharti
Infratel at US$3.1bn. Our valuations are at a 40-60% discount to US
peers. However, successful efforts to monetise its tower assets, via an
independent listing, should be a major source of cash and unlock value
for shareholders. Maintain Outperform.
3G rollouts to boost tower rentals.
Bharti’s tower companies - Indus Towers (42% holding) and Bharti Infratel -
have had a head start with pan-India portfolios, benefits from anchor
tenancies and now from ongoing 3G rollouts. However, 3G tenancies initially
will be mainly on existing 2G towers and these will be accounted as loading
and therefore business improvements will be visible in better rentals. This is
already partly evident in Indus rentals which, in the last quarter, jumped 21%
YoY. Meanwhile, the loading is estimated at only about 30-40% of regular
rentals which should enable 3G operators like Bharti and Vodafone Essar to
keep operating costs for new rollouts low. Only when 3G rollouts extend to
Tier-2 towns will requirement for new towers increase.
Regulatory hurdles for Indus Towers.
Alongside ramp-up of the tower businesses, the Gujarat high court has
recently refused sanction to the demerger of Vodafone Essar’s circle towers
after objections by the income tax department which is of the view that the
proposed demerger can result in tax evasion by the operator. Vodafone Essar,
after the sanction of the scheme, was to transfer these tower assets to Indus,
a joint venture between Bharti, Vodafone Essar and Idea. While the company
has appealed on the matter with the decision still pending and currently
pertains to only one circle, this - if it escalates - is a new regulatory risk and
potential hurdle in Bharti’s proposed tower asset (including 42% holding in
Indus) listing and the commensurate delay in value unlocking.
Planned tower asset listing to unlock value.
We value the independent entities of Indus at US$7.8bn and Bharti Infratel at
US$3.1bn, implying 8-9x FY12CL EV/Ebitda. Our valuations are at a 40-60%
discount to US peers and 30% to 2008’s PE deals, given the high competition
among tower companies (more than six large players), 60-65% lower rentals
versus US operators and lesser tenancy. Nevertheless, our valuation for
Bharti’s tower assets accounts for US$5.9bn EV and an equity value of Rs50
per share. Efforts by Bharti to monetise these, through independent listing,
will be a significant source of cash, which will enable balance sheet
deleveraging and also unlock value for Bharti shareholders. We maintain our
Outperform rating.
No comments:
Post a Comment