Bharti Infratel is engaged in the business of establishing, operating and maintaining wireless communication towers.

Bharti Infratel Limited

• Market Cap:  40,969 Cr.
• Current Price:  221.50
• 52 weeks High / Low  296.50 / 120.05
• Book Value:  73.22
• Stock P/E: 12.42
• Dividend Yield: 6.77 %
• ROCE: 20.70 %
• ROE: 14.31 %
• Sales Growth (3Yrs): 7.09 %
• Listed on BSE and NSE
• Face Value:  10.00

• PEG Ratio: 1.25
• Promoter holding: 53.53 %
• Pledged percentage: 0.00 %
• Debt:  4,627 Cr.
• Price to Earning: 12.26
• EPS:  17.83
• Net profit:  3,299 Cr.
• Profit growth: 32.28 %
• Profit growth 7Years: 17.17 %
• Net profit preceding 12months: 3,257 Cr.
• Profit growth 3Years: 4.55 %
• Dividend yield: 6.86 %
• Debt to equity: 0.34
• Sales last year:  6,826 Cr.
• Sales growth: -1.22 %
• Unpledged promoter holding: 53.53 %
• Investments:  7,432 Cr.
• Intrinsic Value:  356.16

Bharti Infratel Limited is a telecom tower infrastructure service provider that deploys, owns and manages telecom towers and communication structures for various mobile operators. Bhart Airtel, Vodafone Idea and Idea Cellular has established Indus Towers, an independently managed joint venture that provides non-discriminatory shared tower services to all wireless telecommunications service providers. In furtherance of this joint venture, B​harti Infratel holds 42% stake in Indus Towers. Market cap of Bharti Infratel is ~40,321 cr.
 

Investment rationale
 

Market leadership position: Bharti Infratel, on a consolidated basis, is one of the largest pan-India tower infrastructure providers based on the number of towers owned and operated by Bharti Infratel and Indus. It has a nationwide presence with operations in all 22 telecommunications Circles in India, with Bharti Infratel and Indus having operations in 4 overlapping Circles. The company’s consolidated portfolio as on March 2020 consists of over 95,372 telecom towers which include over 42,053 of its own towers and the balance from its 42% equity interest in Indus Towers Ltd.
 

Long term contract with leading wireless telecommunications service providers: Bharti Infratel, together with Indus Towers, has three largest customers viz. Bharti Airtel, Vodafone Idea Ltd. and Reliance Jio Infocomm Ltd. which are the leading wireless telecommunications service providers in India by wireless revenue. Bharti Infratel derives business strength from the inherent high client stickiness, given the challenges in network reorganisation as well as the Master Service Agreements (MSAs) with the telcos. The MSAs signed between the telcos and tower companies have lock-ins, which provide committed revenue visibility over the lock-in period. On a consolidated basis, the estimated weighted average remaining life of service contracts, entered into with telecommunications service providers, as on March 2020 is 4.35 years with minimum lease payment receivables of Rs36,570  cr which provides visibility on future revenues.
 

Positive industrial outlook: The Indian telecommunications industry is one of the most competitive globally. The focus of Indian operators in the last ten years or so has been to develop an affordable mass market telecommunications service model which allows for service availability across India’s urban and rural areas at affordable prices. A strong focus on optimization of operational expenses through the outsourcing of non-core areas, process innovation, cost-to-serve alignment and strategic partnerships has also resulted in steady growth of the Tower Industry. Today, all operators prefer to lease towers from tower companies rather than build them for captive use. With the reduction in overall tariffs and restrictions placed by various local regulatory bodies on the installation of telecom towers, infrastructure sharing amongst service providers has become the norm rather than the exception in the Indian telecommunications industry. The tower industry remains critical for the telecom service provider industry. With the strong telcos expected to expand their network, especially for data services, a healthy demand for towers can be expected going forward in the long run.
 

Proposed merger with Indus Towers to drive operational synergies: Bharti Infratel had announced a merger with Indus Towers in April 2018 in which it holds 42% of equity. We believe the proposed merger would lead to operational synergies in the form of capex/opex, increased revenue and capital productivity and would result in enhanced return ratios (RoE) due to improvement in capital structure. This merger has been approved by Competition Commission of India (CCI) and is in process of getting approvals from NCLT and DoT.
 

Outlook & Valuation: Bharti Infratel has healthy operating free cash flows of Rs4,315.5 cr for FY20, a growth of 2% on YoY basis. Looking at the capital intensive nature of the company, we believe the business model of Bharti Infratel will allow stability of cash flows from the existing tenants given the lock-ins and committed rentals. It generates healthy return ratios of +22%. The Net Debt/EBITDA has improved marginally by 2bps from previous quarter at 0.68x during Q4FY20. Bharti Infratel looks immune to the ongoing lockdown as it derives its business from providing tower infrastructure services to telcos which are hardly seeing any business impact from the current lockdown. At current price, the stock is trading at an attractive valuation 13.2x of its one year forward earnings.

 

Key risks: a) Capital intensive operations b) Consolidation of telecom industry might exert pressure on the company’s revenues.
 

Duration of recommendation: Short to Medium term.