While Bharti Infratel’s profit has more than doubled since the company went public in FY13, rising at a compounded annual growth rate (CAGR) of over 33% in the three years to FY16, the street has been somewhat concerned about the impact of consolidation in the telecom industry on the company. Analysts at Jefferies, for instance, expect a 9% fall in Infratel’s revenue, a 14.8%% fall in its EBITDA and a 15.4% in its net profit if about 28% of its towers – the worst case scenario as per Jefferies – become redundant due to the Vodafone-Idea merger.
However, if only 20% of the towers become redundant – as has been indicated by the management of Idea – the impact on the company’s revenue will only be 6.3% and on its bottom line will be about 11.4%, Jefferies’ analysts have noted. Infratel’s management, however, has indicated in the past that significant exit penalties in the master service agreements (MSAs) and the long term nature of such contracts should act as a cushion.
The company itself, in recent times, has tried to play down the risks of consolidation on its business. “Irrespective of the nature of the consolidation, I think capacity at that end may not necessarily need to be consolidated. It may, at best, be redeployed partially,” Infratel’s Harjeet Koli had recently said. Analysts at Credit Suisse, similarly, expect a tenancy loss of less than 10-12% for Bharti Infratel due to the Vodafone-Idea merger.
“That both the entities have committed to selling their tower investments before the deal closure is a significant positive for Bharti Infratel,” they have recently observed, adding that as per their understanding, the company has a right of first refusal in case Vodafone or Idea look to sell out their Indus holdings, giving it an opportunity to consolidate its tower holdings.