HSBC says stay cautious on Bharti Infratel; target price Rs 315

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New Delhi | Updated: September 30, 2016 7:15:41 AM

In our view the market seems to be pricing an accelerated deployment of 4G by incumbent telcos post Jio 4G rollout early this month.

Given the limited ability to control spectrum capex, incumbent telcos are likely to bargain hard with tower cos for volume-based discounts. To sum up, prospects for rental revenue growth look muted for the next 12-18 months. (Reuters)Given the limited ability to control spectrum capex, incumbent telcos are likely to bargain hard with tower cos for volume-based discounts. To sum up, prospects for rental revenue growth look muted for the next 12-18 months. (Reuters)

In our view the market seems to be pricing an accelerated deployment of 4G by incumbent telcos post Jio 4G rollout early this month. Further there is an expectation that an increase in spectrum availability post auctions may improve volume growth prospects for tower companies to benefit from increased capex deployments.

Given the limited ability to control spectrum capex, incumbent telcos are likely to bargain hard with tower cos for volume-based discounts. To sum up, prospects for rental revenue growth look muted for the next 12-18 months.

The competitive landscape in the tower space remains tough as competition is more vulnerable to the potential exit of small players; this may imply pricing pressure in the tower sector in the next 9-12 months.

We estimate FY16-19e rental revenue growth CAGR for BHIN at c6.4% and see EBITDA margins slightly improving, to 44.8% by FY18e from 44% at present.

We remain cautious and cut our TP to R315 to factor in near-term pricing pressure driven by a combination of factors, including the move to a new rate card approach and possible volume discounts with incumbent telcos. This leads to a cut in our FY17e EPS of c7%.

Key upside risk: than expected tenancy gains coming from 4G entrants. At present we expect 12,000 new tenancies spread over the next 18 months accruing to BHIN from 4G entrants.

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