Bharti Infratel: Valuations rich, Street expectations a bit misplaced; downgrade to SELL :: Kotak Sec, report

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Valuations rich, Street expectations a bit misplaced; downgrade to SELL. We continue to find fresh data tenancy euphoria misplaced and the valuations, driven by this euphoria, rich. Our operating earnings estimates are broadly unchanged post a broadly in-line 3QFY15. DCF rollover to December 2016 (from March 2016) does drive an increase in our target price on the stock to `310 (from `270). However, the recent sharp run-up drives a downgrade to SELL from REDUCE.

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Bharti Infratel: 3QFY15 results operationally weaker than expectations ::Kotak Sec, report

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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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Bharti Infratel :: Management Meetings:: ICICI Securities

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Technicals-Bharti Infratel, SRF, Ador Welding, Vinyl Chemicals :: Business Line

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BHARTI INFRATEL 1Q: largely in line ::bnp paribas

1Q: largely in line

RESULTS REVIEW
1Q largely in line; gross adds weaker than expected
Adjusted revenue missed our revenue by 1.3% while EBITDA and EPS beat
our estimate by 1.3% and 6.7% respectively. Gross adds for the quarter
were weak at 1,583 sites (4Q: 2,923) due to soft network rollout by telcos.
BHIN’s tenancy remained at 1.91x. The reported EBITDA beat was driven
by accounting change and cost efficiencies.
SUMMARY
Strong data growth and return of pricing power for telcos
Bharti Infratel is well positioned to benefit from data growth in India, in
our view. Indian telecom operators’ data revenue is increasing at a
healthy 20-25% q-q and falling 3G data tariffs could boost volumes.
Improvement in telecom operators’ RPM and profitability would improve
their ability to invest in networks which in turn would benefit BHIN.
VALUATION
No reason to significantly change our EPS forecast: BUY
BHIN trades at an attractive 5.1x FY15E EV/EBITDA, a discount to Indian
telecom operators at 5.8-7.1x. It has net cash of INR19 per share (13% of
CMP) and generates strong FCF. We do not expect significant changes to
our earnings forecasts on the back of the 1Q results. Capex was lower
than we expected, at INR3b, but the company retained its annual capex
guidance of INR20b. The average residual life of contract is 7.4 years.
Promoter Bharti Airtel has fully repaid its INR23b loan to BHIN. BHIN
continues to evaluate inorganic opportunities. Some of BHIN’s towers
merged with Indus Towers (Not Listed) effective 10 June, negatively
impacting revenue and costs with a net positive impact on EBITDA.

Bharti Infratel- Muted operational performance in 4QFY13; FY14 likely to be a better year than FY13; reiterate OW:: JPMorgan

Bharti Infratel reported a muted quarter with weak rental revenue growth and a
modest decline in core margins (ex energy & other reimbursements). We need to
see higher growth in rental revenues for better quality earnings. Growth in
reimbursements does not necessarily provide an indication of earnings strength.
Capex remained meaningfully higher than our expectations due to changes in
estimates of site restoration obligations. Though net tenancy increase was weak,
gross tenancy additions were healthy in 4QFY13. We think 4QFY13 rental
revenues remained weak partly due to exit/downscaling of operations by players
whose licences were cancelled in Feb-12. We believe these headwinds are behind
the company, and existing operators are likely to expand footprint to grow their
subscriber base/market share in a market where subscriber additions are
moderating. So, we expect FY14 to be a better year for Bharti Infratel than FY13.
 Rental revenue growth needs to pick up for convincing/sustainable revenue
growth. Bharti Infratel reported Q/Q revenue growth of 1.8% in 4QFY13, but
rental revenues increased merely 0.6% Q/Q. Revenue growth was primarily
driven by energy and other reimbursements. We need to see growth in rental
revenues pick up for sustainable and better quality earnings. We expect rental
revenue growth to accelerate in FY14 as tenancy losses are likely to be nominal
because the operators who were impacted due to licence cancellations have
already discontinued/downscaled their operations.
 Core EBITDA margins (ex energy & other reimbursements) declined
modestly Q/Q due to muted revenue growth. Due to significant operating
leverage in Bharti Infratel's business model, core EBITDA margins (ex energy
& other reimbursements) declined 50bps Q/Q to 58.2% because revenue growth
remained muted. We expect core margins to improve as rental revenue growth
picks up in FY14.
 Higher-than-expected capex remains a concern. Bharti Infratel reported
capex of INR 6.7 billion in 4QFY13, meaningfully higher than our estimate.
Management suggested that a INR 2.0 billion adjustment for changes in site
restoration obligation estimate caused the pick-up in capex.
 Dividend payout ratio of 71% surprised positively. Bharti Infratel approved
total dividend of INR 4 per share i.e. 71% dividend payout ratio, meaningfully
higher than stated dividend payout target/policy of 30-50% of consolidated EPS.
 Reiterate OW with Mar-14 PT of INR 215. Given attractive free cash flow
growth prospects, current valuation is undemanding (EV/EBITDA at 7.7x FY14
or 10.0x on FY14 adjusted free funds from operation excluding growth capex),
at ~60%+ discount to US-listed towers and ~40% to Indonesian players.

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.