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3QFY15 results operationally weaker than expectations. Higher-than-expected energy spread drove marginal outperformance in reported 3QFY15 EBITDA even as core service revenues and EBITDA missed expectations. Tenancy expansion pace slowed down and ex-energy EBITDA margin was flat yoy. FCF conversion (FCF/EBITDA) was weak again on account of a surge in capex. We shall review our estimates post the earnings call. Our broad thesis remains the same – quality story, overvalued. Retain REDUCE.
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3QFY15 – headline EBITDA beats marginally on higher-than-expected energy spread BHIN reported consolidated revenues of `29.5 bn (+0.6% qoq, +8% yoy) and EBITDA of `12.7 bn (+4.8% qoq, +12.8% yoy). EBITDA was marginally ahead of our expected `12.6 bn despite 2.4% miss on topline. Higher-than-expected energy spread (`960 mn) versus our expected `690 mn drove the EBITDA outperformance. We note that forecasting energy spread is challenging and we would rate the modest EBITDA outperformance as low-quality, to that extent. Pure services EBITDA was 1.4% lower than our expectation. Reported PAT of `5.1 bn (+23.5% yoy; sharp deceleration in yoy growth trajectory) was 11% lower than our expected `5.7 bn on account of lower-than-expected net interest income, which came in at `520 mn versus our expected `1.1 bn. We are a tad surprised with the low effective cash yield (interest income of `1.22 bn on average gross cash balance of `65 bn suggests a yield of 7.5%); this may be on account of investments in MFs where the company may book income only on redemptions. Operating metrics – tenancies miss estimates BHIN reported service revenue growth of 2.3% qoq and 8.7% yoy – muted, in the backdrop of Street expectations of Jio business-led acceleration in growth trajectory. Tenancies grew 9.4% yoy on a consolidated basis as EOP tenancy ratio expanded to 2.1X from 1.97X yoy and 2.07X qoq. Absolute tenancy addition was 4,478, modest acceleration from 2QFY15 levels but below our expectations. Rental/tenant was flat yoy at `34,017/tenant/month, in line with our expectations. Rental trends were weak for BHIN standalone (down 3.4% yoy) while Indus saw a 2% yoy expansion. FCF declines yoy as capex jumps on expected lines Sharp yoy jump in capex drove 28% yoy decline in 3QFY15 FCF and 25% decline in 9MFY15 FCF to `4.6 bn and `15.1 bn, respectively. 9MFY15 capex stood at `15.2 bn, +57% yoy, in line with the company guidance. Maintenance capex for the quarter was `1.06 bn, implying an annualized maintenance capex per tower of `50,000. We find this number low; it perhaps reflects the fact that not all towers have hit the maintenance phase yet. We expect this number to inch up over the coming years. Our analysis of capex elements suggests that the company continues to spend heavily on upgrading towers to accommodate new tenants; we suspect the Street may be underestimating this element of company’s capex
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
3QFY15 results operationally weaker than expectations. Higher-than-expected energy spread drove marginal outperformance in reported 3QFY15 EBITDA even as core service revenues and EBITDA missed expectations. Tenancy expansion pace slowed down and ex-energy EBITDA margin was flat yoy. FCF conversion (FCF/EBITDA) was weak again on account of a surge in capex. We shall review our estimates post the earnings call. Our broad thesis remains the same – quality story, overvalued. Retain REDUCE.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
3QFY15 – headline EBITDA beats marginally on higher-than-expected energy spread BHIN reported consolidated revenues of `29.5 bn (+0.6% qoq, +8% yoy) and EBITDA of `12.7 bn (+4.8% qoq, +12.8% yoy). EBITDA was marginally ahead of our expected `12.6 bn despite 2.4% miss on topline. Higher-than-expected energy spread (`960 mn) versus our expected `690 mn drove the EBITDA outperformance. We note that forecasting energy spread is challenging and we would rate the modest EBITDA outperformance as low-quality, to that extent. Pure services EBITDA was 1.4% lower than our expectation. Reported PAT of `5.1 bn (+23.5% yoy; sharp deceleration in yoy growth trajectory) was 11% lower than our expected `5.7 bn on account of lower-than-expected net interest income, which came in at `520 mn versus our expected `1.1 bn. We are a tad surprised with the low effective cash yield (interest income of `1.22 bn on average gross cash balance of `65 bn suggests a yield of 7.5%); this may be on account of investments in MFs where the company may book income only on redemptions. Operating metrics – tenancies miss estimates BHIN reported service revenue growth of 2.3% qoq and 8.7% yoy – muted, in the backdrop of Street expectations of Jio business-led acceleration in growth trajectory. Tenancies grew 9.4% yoy on a consolidated basis as EOP tenancy ratio expanded to 2.1X from 1.97X yoy and 2.07X qoq. Absolute tenancy addition was 4,478, modest acceleration from 2QFY15 levels but below our expectations. Rental/tenant was flat yoy at `34,017/tenant/month, in line with our expectations. Rental trends were weak for BHIN standalone (down 3.4% yoy) while Indus saw a 2% yoy expansion. FCF declines yoy as capex jumps on expected lines Sharp yoy jump in capex drove 28% yoy decline in 3QFY15 FCF and 25% decline in 9MFY15 FCF to `4.6 bn and `15.1 bn, respectively. 9MFY15 capex stood at `15.2 bn, +57% yoy, in line with the company guidance. Maintenance capex for the quarter was `1.06 bn, implying an annualized maintenance capex per tower of `50,000. We find this number low; it perhaps reflects the fact that not all towers have hit the maintenance phase yet. We expect this number to inch up over the coming years. Our analysis of capex elements suggests that the company continues to spend heavily on upgrading towers to accommodate new tenants; we suspect the Street may be underestimating this element of company’s capex
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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