Bharti Infra takes off as Street sees RJio deal boosting Ebitda

Dec 12 2013, 00:52 IST
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Reuters Reuters
SummaryBharti Airtel and Reliance Jio announced an arrangement under which they will share each other’s infrastructure

The Bharti Infratel share gained more than 3% on Wednesday on the back of an infrastructure-sharing agreement announced between Bharti Airtel and Reliance Jio. Bharti Infratel is Bharti Airtel’s tower arm.

On Tuesday, Bharti Airtel and Reliance Jio, which belongs to Mukesh Ambani’s RIL, announced an arrangement under which they will share each other’s infrastructure. This will include optic fibre network — inter- and intra-city — along with submarine cable networks, towers and internet broadband services.

According to analysts, this is a positive deal for the sector. “The less obvious benefit, in our view, will be the emergence of a more benign competitive landscape than was earlier feared,” said Credit Suisse analysts in a research report.

Earlier, in April, Reliance Jio entered into a R1,200 crore deal with Anil Ambani’s RCom to use its 1,20,000-km inter-city fibre optic network. In June, both companies entered into a R12,000-crore deal wherein the RIL subsidiary got the right to use 45,000 ground and rooftop-based telecom towers of RCom to launch 4G services.

According to experts, the Bharti-Reliance Jio deal could have a negative impact on RCom. “The deal could curb market expectations of further infrastructure-leasing deals for RCom,” said Kotak Institutional Equities in a research report. The RCom share fell 3.3% to R133 on Wednesday.

Meanwhile, brokerages feel Bharti Infratel could see a boost to its earnings. “Applying a 5X EV/Ebitda multiple on this incremental Ebitda would mean an incremental enterprise value (EV) of R3,900-4,700 crore or R21-25/share. We add an option value of R23/share and raise our target price to R200,” added Kotak Institutional Equities analysts.

Year-to-date, Bharti Airtel has gained 3.58%, Idea Cellular is up 66.06%, while RCom is up 80.76%. According to experts, the recent measures take by the industry regulator have been positive for the sector. “Telecom Regulatory Authority of India has recommended reduction in spectrum usage charges. The spectrum charges have also been rationalised,” said Abhishek Anand, telecom analyst, Centrum Wealth Management.

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