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GTL Infrastructure (GTLI IN)
UW(V): Tenancy needs to improve
In line 2Q FY2011 results, Aircel tower assets not consolidated
due to pending approvals
Balance sheet concerns remain, tenancy at 1.2x reflects
concerns
Maintain INR39 target price and Underweight (V) rating
GTL Infra’s 2QFY11 results released today were in line with expectations. Revenues and
EBITDA increased at c5.6% and c5.2% q-o-q respectively. The EBITDA margins were stable
at c57% and were in line with our estimates. The company did not consolidate Aircel's tower
assets acquired in June 2010 in this quarter due to some pending approvals. GTL Infra reported
a loss of cINR162mn during the quarter, c16% lower than last quarter’s loss driven by forex
gains of 266mn compared to a forex loss of INR234mn in the last quarter.
The tenancy for this quarter was at c1.19x, far below the 1.6x level at which tower
companies become unviable in our view. The key driver for the tower company remains ramp
up in tenancy, and in the case of GTL near-term improvement looks difficult as most of the
operators remain tied up with tower companies. However, deployment of 3G in the 2.1 GHz
band should drive demand for new towers and boost tower tenancy.
Key things to watch out for the stock are 1) Future growth strategy given RCOM deal has
been called off and tenancy ramp up. 2) Funding/capital arrangements of the company
UW(V), target price INR39: We retain our TP of INR39 and our cautious view on the stock,
driven by balance sheet concerns (FY12e EV/EBITDA at 15x). Our DCF based target price of
INR39 implies a 14.2x EV/EBITDA on FY12e. In our view, the cancellation of the RCOM
deal during this quarter would limit GTL Infrastructure’s ability to scale up its presence in the
Indian tower space anytime soon. We retain our Underweight (V) rating on GTL Infrastructure
driven by its stretched balance sheet (net debt/equity at 2.7x) poor tenancy on legacy towers
and uncertainty over future tenancy growth given telecom sector consolidation. Upside risks
for the stock include, winning orders from BWA players and ability to de-leverage the balance
sheet with the introduction of a strategic partner.
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