Bharti Infratel shares well positioned despite tough environment, target price

Written by Motilal Oswal | Motilal Oswal | Updated: Jun 26 2013, 22:21pm hrs
We initiate coverage on Bharti Infratel (BHIN) shares with a neutral rating and price target of Rs 156. With a tower base of ~82,000 on consolidated basis (including 42% share of Indus towers), Bharti Infratel has ~21% share in the Indian tower industry.

A pan-India footprint (including Indus) with strong operator tenants (one of the three GSM incumbents is a tenant on almost every tower) and long-term tenancy contracts (5-15 years) give BHIN a strong leadership position.

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The Indian wireless industry has entered into a consolidation phase, which could potentially imply limited tower demand and over-supply. With increased focus on profitability and RPM improvement and continued regulatory uncertainty, we believe wireless roll-out intensity will remain sluggish.

3G/data has been expected to be a demand driver for tower companies. However, increased 3G loading in the past eight quarters has not resulted in any meaningful improvement in rental rates for BHIN. Sharing revenue per operator has remained largely flat at ~R35k/month despite 3G sites increasing from ~9% to ~19% of 2G base for Bharti/Idea over the past eight quarters.

We estimate 9%/10%/17% CAGR in consolidated revenue/Ebitda/EPS over FY13-16, driven by 4%/6% CAGR in towers/co-locations. Average sharing factor should improve from 1.9x in FY13 to 1.97x in FY16.