Bharti Infratel -Passive play on aggressive data rollout  Standard Chartered Research

 We initiate coverage on Bharti Infratel (BIL) with an Outperform rating and PT of INR 240. Potential re-leveraging and one-off dividends provide upside triggers.
 BIL offers investors a low risk option to gain exposure to the ongoing wave of data network rollout.
 Robust free cash generation capacity and potential for higher dividends will lead to a re-rating notwithstanding the moderate EBITDA CAGR (~9% over FY12-15E).
 Strong parentage provides superior visibility to tenancy even as stability in telecom tariffs might alleviate any pricing pressure on rentals.

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Initiate with Outperform. We initiate coverage on BIL with Outperform and PT of INR 240, including the DCF of BIL standalone and its proportionate share in Indus. We find valuations attractive given consolidated FCF yield of c.7-8% over FY13-15E (vs. global peers‟ c.2%) and FY13E P/B of 2.1x (vs. global avg. of c.9-10x). At our PT, imputed EV/EBITDA of 9.4x FY14E is reasonable vis-à-vis peers‟ notwithstanding BIL‟s slower growth and higher WACC (low debt).
Well placed to leverage data network rollout. Towercos‟ economics improves materially with incremental co-location, which comes with insignificant opex/capex. As per Analysys Mason estimates, industry co-location is likely to increase from 1.7x in FY12 to 2.5x in FY17E on account of (1) requirement for 3G capacity sites, (2) 4G rollout in urban areas including by operators without existing MSAs and (3) weaker propagation characteristics in higher frequency bands (2.1Ghz, 2.3Ghz). We estimate BIL‟s consolidated co-location will increase to 2.45x in FY18E (from 1.9x currently) in line with the industry.
Moderate but predictable growth. Co-location growth coupled with improving rental yields (growing data co-location + annual escalation) is likely to lead to 9.4% CAGR in consolidated EBITDA and 26% CAGR in net profit. BIL‟s FY13E net cash balance sheet makes it well positioned to either grow inorganically or return cash to shareholders.
Risks. Industry consolidation/exits, slower-than-expected data rollouts and disruptive pricing from other towercos pose downside risks besides stock overhang for minimum 25% float requirement and a potential Indus IPO. Inorganic growth through acquisition of other tower assets (India or abroad) can correct the capital structure, but the net impact on valuation will need to be assessed.