Bharti Infratel :: Management Meetings:: ICICI Securities

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Incremental tenancies EBITDA accretive…
We recently met the management of Bharti Infratel (BIL) to understand the
health of the tower industry and the growth prospects that lie ahead for
the company. BIL is the market leader in the tower sharing space with a
portfolio of about 84,303 towers (36381 towers at the standalone level
and 47922 towers via 42% stake in Indus). Though the tower growth has
been in the range of 1-4% in the past years, revenues, EBITDA and PAT
have grown at 11.5%, 16.6% and 59.0% CAGR respectively, in FY10-14.
The growth has been aided by the increase in tenancies from 1.90x in
FY12 to about 2.01x in FY14, which lends high operating leverage. The
company also has the top three telecom service providers as its anchor
tenants. With the impending launch of Reliance Jio’s services and a ramp
up in data offerings by existing operators, demand for additional tenancy
is bound to increase. BIL generates about | 1767.7 crore free cash flow
each year and has stated a dividend policy of distributing 60-80% of its
standalone profits or 100% of interest dividend, whichever is higher. The
company is also open to growing by inorganic expansion an when there
is a suitable opportunity. With strong free cash flow generation, a low risk
annuity business model and expected high tenancy growth, owing to the
already commenced data revolution, we believe Bharti Infratel is on a
strong footing, going forward.
Data to drive tenancies, going ahead…
There would be an unprecedented demand for high speed 3G/4G data,
going ahead. The number of cell sites is far lower than the actual
requirement for seamless data connectivity. There would be loading of
3G and 4G cell sites, which involves negligible opex and would flow
directly to the EBITDA. The plugging of the coverage gaps by existing
players would be second growth driver. Lastly, an overall parallel increase
in consumption would require a further capex towards the towers, hence,
driving the growth of the company. The company currently has a tenancy
of 2.03 and has the potential to at least reach 2.4-2.5 levels with potential
EBITDA margins of ~65-75%.
Revises dividend distribution policy
The company has now adopted a strong dividend policy by committing to
distribute as much as 60-80% of its standalone profit or 100% of interest
dividend, whichever is higher. The distribution of | 4.4/share as dividend
in FY14 and an announcement of | 4.5/share (represents the Indus
dividend received by BIL) gives credence to its stated policy and also
suggests an improvement in the return ratios, going ahead.