Accelerated data network expansion by Bharti and RJio should keep gross tenancy additions healthy. Net additions might be moderated by the potential loss of tenancies from Aircel and TTSL. As cell density grows in urban areas, growth over the next two years would be tenancy driven. The Vodafone-Idea merger could have a negative impact of 15% on EBITDA, given a potential 35k -37k site reduction. We expect 11%-9% revenue growth in FY18-19 on the back of healthy 10% tenancy addition from Bharti and RJio in F Y18. Assuming a 15% EBITDA cut due to Vodafone-Idea merger, the stock would be valued at 10.3x (FY19E). BHIN’s key value proposition is its high free cash generating capability, with 6-7% FCFE yield. Bharti Infratel (BHIN) has witnessed healthy tenancy addition over the last 2-3 quarters, led by aggressive 4G rollout by RJio and Airtel.
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In FY18, gross additions should remain high, as RJIo and Airtel are expected to continue accelerated data network expansion. Net additions would depend on the balance 15% tenancies, with TTSL and Aircel tenancies at risk. Renewal of master service agreements is completed by 75% tenants. Rentals are frozen for most tenants for the first three years; so, price increases are likely to be negligible. Over the last five years, the ratio of cell site addition to tenancy addition has been about 4:1, implying large proportion of cell site addition through loading. In the next two years, fresh tenancy could increase, as cell density grows in urban areas on high band spectrum. This could increase tenancy v/s loading, given that a large portion of loading -led data network rollout is completed. The prominence of single RAN cell sites using multiple technologies( 2G, 3G, 4G) at one cell site is growing. This has created concerns that telcos may not require to load each technology separately on the tower, thus reducing tenancy charges. However, we understand that single RAN adoption does not impact loading revenues, as charges are technology-wise and are also incurred separately for incremental antenna space.