Bharti Infratel (BIL) generated Rs 780 crore in free cash flow in the latest quarter, taking net cash to Rs 5,100 crore (Rs 27/share). Low capex needs and strong cash generation have allowed the management to lift its dividend payout to higher of 100% dividend received from Indus or 60-80% of standalone profits.
Over FY15-18, we expect a 15% Ebitda Cagr and a 3% dividend yield. Meanwhile, management continues to hunt for acquisitions, and aims to have a net debt to Ebitda ratioof ~2x.
We value Bharti Infratel using a one-year forward EV/Ebitda valuation. Since February 2014, Bharti Infratel’s 12-month forward EV/Ebitda multiple has rerated by over 100%.
We expect Bharti Infratel’s EV/Ebitda multiple to rerate further on the back of a higher Ebitda Cagr of 15% as well as the recent successful spectrum auctions.
Bharti Infratel’s valuation discount to global tower companies has narrowed from its 65% at peak to 20% at present. Given our expectation of a rerating, we expect this discount to narrow further to 15% and hence we use a 14.5x EV/Ebitda multiple which is at a premium to the current 12-month forward multiple for our valuation.
CEO DS Rawat highlighted that BIL is riding the India mobile data boom, particularly with increased spending by anchor tenants on 3G and 4G rollouts. Maintain buy with a price target of Rs 398.10.