Bharti Infratel (BHAINF) 370

Transcription

1 Result Update Rating matrix Rating : Buy Target : 500 Target Period : 12 months Potential Upside : 35% What s changed? Target Changed from 530 to 500 EPS FY16E Changed from 12.1 to 12 EPS FY17E Changed from 14.7 to 14 Rating Unchanged Quarterly performance Q3FY16 Q3FY15 YoY (%) Q2FY16 QoQ (%) Revenue 3, , , EBITDA 1, , , EBITDA (%) bps bps PAT Key financials Crore FY14 FY15 FY16E FY17E Net Sales 11,668 12,281 12,281 13,084 EBITDA 4,400 5,004 5,322 5,899 Net Profit 1,518 1,992 2,282 2,646 EPS ( ) Valuation summary FY14 FY15 FY16E FY17E P/E Target P/E EV / EBITDA P/BV RoNW RoCE Stock data Amount Market Capitalization 70,177.9 Total Debt (FY15) 1,713.1 Cash and Investments 4,056.0 EV 67, week H/L 482 / 354 Equity capital 1,893.8 Face value 10.0 Research Analyst Bhupendra Tiwary [email protected] Sneha Agarwal [email protected] Safe bet in telecom space January 28, 2016 Bharti Infratel (BHAINF) 370 Bharti Infratel reported its Q3FY16 numbers with revenues at crore, up 4.9% YoY, slightly higher than our expectation of a topline of crore. Revenues from rentals grew 9.0% YoY to crore as consolidated tenancies grew from 2.08 to 2.17 over the same period. Energy revenues declined 2.0% YoY to crore as input prices declined EBITDA came in at crore, up 5.5% YoY vs. expectations of crore. EBITDA margins came in at 43.4%, up 25 bps YoY, as expenses towards rent (expansion in cities) & other expenses were up 12.4% YoY and 37.5% YoY, respectively. Energy margins remained at 4.8% as it continued to pass on the energy benefits PAT came in at crore (vs. expectation of crore), owing to higher other income, which came in at crore Biggie in tower space with towers Bharti Infratel (together with Indus) is India s largest tower player. It has towers across 22 circles on a consolidated basis, which includes towers (at the standalone level) and 42% stake in the Indus Towers. The company continues to make its tower portfolio denser in cities to meet various capacity requirements of telcos. The revision in capex guidance by several telcos and strong demand in data would lead to higher tenancies for Infratel. Going ahead, with 3.0% & 8.1% increase in towers & tenancy, respectively, we expect rental revenues to grow at 9.2% CAGR in FY15-17E to crore. Consolidation in telecom space to be beneficial in longer term There has been massive consolidation in the telecom space with players such as Videocon, Reliance Communications, Systema Shyam, Aircel etc. either scaling down its operations or contemplating merging with each other. Infratel did face loss in tenancies owing to such a phenomenon, which also led to ~610 exits in the quarter on a consolidated basis. However, the management reiterated that the loss in tenancies is only temporary and weeding out inefficient players leads to higher room available for efficient telcos. Consolidation trends are also visible in the tower space with ATC emerging as a competition to Infratel post the acquisition of Viom. BIL to bid in government s Smart Cities project... BIL has an annuity led business with a remaining estimated contract life of ~5.9 years, which lends certainty to ~ crore of future cash flows. The company delivered 2.8% dividend yield by declaring a dividend of 11 in FY15. We expect BIL to pay dividends to the tune of 11.0 and 12.1 per share in FY16E and FY17E, respectively. BIL awaits regulatory clarity about buyback norms, which could will help in optimising the capital structure and, hence, improve return ratios. Hence, the company is targeting investing some resource into the government s Smart Cities project. The contours of the same are unknown to us at this juncture. We would factor in anything on that when there is additional clarity. Maintain BUY; belief in sustainable growth story; target price 500 With ballooning data growth and tremendous opportunity, going ahead, considering the kind of spectrum purchased by telcos and stable annuity based business model, we maintain our BUY recommendation with a target price of 500, based on a SOTP-DCF based methodology. The target price is slightly reduced factoring in the lower EBITDA commentary by the management. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY16 Q3FY16E Q3FY15 Q2FY16 YoY (%) QoQ (%) Comments Revenue 3, , , , The energy revenues came in higher than expected at crore Other Income Employee Expenses Power and Fuel 1, , , , Rent The tower expansion has been more skewed towards the cities which led to higher rental expense Other Expenses Repairs and Maintenance EBITDA 1, , , , EBITDA Margin (%) bps 59 bps The margins came in lower than expected on account of higher other expenses. Depreciation Interest Exceptional Items NA NA Total Tax PAT Higher other income led to higher-than-expected PAT Towers (Consolidated) 88,055 87,813 84,303 87, Tenancy Ratio (x) (Consolidated) Better-than-expected tenancy addition during the quarter Sharing revenue per tower p.m 74,820 74,694 69,740 73, Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 12, , , , EBITDA 5, , , , EBITDA Margin (%) bps bps We have slightly reduced our EBITDA estimates in line with the management guidance. The other expenses and rent expenses would increase as the new towers come up hence impacting the overall EBITDA PAT 2, , , , EPS ( ) Assumptions Current Earlier FY14 FY15 FY16E FY17E FY16E FY17E Bharti Infratel Standalone Towers (No.) 35,905 37,196 38,531 40,016 38,370 39,534 Tenancy Ratio (x) Total Co-locations (No.) 69,137 75,819 82,409 90,830 83,003 91,935 Sharing revenue per tower p.m 69,387 73,193 76,840 81,118 77,145 82,437 Sharing Revenue ( Crore) 2, , , , , ,853.3 Indus Towers Towers (No.) 113, , , , , ,331 Tenancy Ratio (x) Total Co-locations (No.) 233, , , , , ,174 Sharing revenue per tower p.m 64,118 68,250 72,429 77,116 72,373 77,481 Sharing Revenue ( Crore) 8, , , , , ,169.7 Bharti Infratel Consolidated Towers (No.) 83,368 85,892 88,604 91,098 88,323 90,493 Tenancy Ratio (x) The tenancy increase has yet not gained full momentum with the entire 3G coverage still away. In light with the run-rate seen we have slightly revised our tenancy ratio Total Co-locations (No.) 167, , , , , ,749 Sharing revenue per tower p.m 66,273 70,169 74,365 78,865 74,432 79,640 Sharing Revenue ( Crore) 6, , , , , ,544.6 ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Strong data growth to fuel tenancies, revenues to follow With robust growth in data volumes, there are an increasingly higher number of tenants on the company s network. The average tenancy at the consolidated level has grown from 1.90x in FY12 to 2.06x by FY15 leading to 32% CAGR in FY12-15 in sharing revenues from crore in FY12 to crore in FY15. Going ahead, we expect the average sharing factor at the consolidated level to reach 2.28x. Hence, this is expected to lead to 9.2% CAGR in FY15-17E to crore. Exhibit 1: Bharti Infratel consolidated tenancy, sharing revenues ( Crore) ,786 8, ,579 7, FY13 FY14 FY15 FY16E FY17E (x) Sharing Revenue Tenancy ratio (x) As far as energy revenues are concerned, the company intends to pass on the benefits flowing from energy to telecom operators. BIL had, hence, maintained only 3-6% energy margins in the past few years. However, in FY15, with the steep decline in crude prices, we saw margins expanding to 7.6%. In line with margins in the past two quarters and the management commentary with regard to the energy margins, we maintain energy margins of 5.0%, which would aid overall EBITDA. Exhibit 2: Energy revenues, energy costs trend ( Crore) FY13 FY14 FY15 FY16E FY17E Energy Revenues Energy Costs ICICI Securities Ltd Retail Equity Research Page 3

4 Cities to have denser networks, EBITDA margin to grow but at a slower pace, to touch 45.1% by FY17E BIL is a play on the operating benefits that would flow in with increasing tenancies. As a new tenant comes on board, rentals multiply whereas costs do not have a linear increase. Loading revenues are also highly margin accretive and would flow in directly into margins. As tenancies rose from 1.9x to 2.13x in the last few years, margins for the consolidated entity have risen to 43% in the current quarter from 37% in FY13. However, as there is currently higher tower requirement in cities, which command a higher rental expense, the growth in EBITDA margins would be slower than expected earlier. We have hence reduced our EBITDA margin expectations. Going ahead, we expect EBITDA margins to expand to 45.1% by FY17E. Exhibit 3: EBITDA, EBITDA margins trend ( Crore) FY13 FY14 FY15 FY16E FY17E (%) EBITDA EBITDA margins BIL to bid in government s Smart Cities project... BIL has an annuity led business with a remaining estimated contract life of ~5.9 years, which lends certainty to ~ crore of future cash flows. The company delivered 2.8% dividend yield by declaring a dividend of 11 in FY15. We expect BIL to pay dividends to the tune of 11.0 and 12.1 per share in FY16E and FY17E, respectively. BIL awaits regulatory clarity about buyback norms, which could will help optimise the capital structure and, hence, improve return ratios. Hence, the company is targeting investing some resource into the government s Smart Cities project. The contours of the same are unknown to us at this juncture. We would factor in anything on that when there is additional clarity. ICICI Securities Ltd Retail Equity Research Page 4

5 Valuation With ballooning data growth and tremendous opportunity, going ahead, considering the kind of spectrum purchased by telcos and stable annuity based business model, we maintain our BUY recommendation with a target price of 500, based on a SOTP-DCF based methodology. The target price is slightly reduced factoring in the lower EBITDA commentary by the management. Exhibit 4: DCF assumptions Particulars Value ( crore) EV of standalone business 49,727.0 EV of Indus Towers 128,790.6 Contribution of BIL (42%) 54,092.1 Indus contribution post holding disount (15%) 45,978.2 Total Enterprise valuation 95,705.3 Less net debt Target market capitalisation 94,904.1 Number of shares Per share value ( ) 500 Upside potential (%) 35% Exhibit 5: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 5

6 Company snapshot Target Price Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date FY13 Mar-14 FY14 Event BIL came out with an IPO and raised about 4118 crore (comprising public issue and subscription by anchor investors). Reaches high tenancy ratio of 1.99x at consolidated level The company declares dividends of about 4.4 per share for the year ended FY14 Jul-14 The parent company Bharti Airtel started the process of selling loss-making African towers, removing the overhang on the stock as there was specualtion on Infratel FY15 The company declares impressive dividend of 11 per share, which amounted to 2477 crore as total dividend payouts Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m)n Change (m) 1 Bharti Enterprises, Ltd. 30-Sep , Fidelity Management & Research Company 30-Nov Comgest S.A. 30-Jun The Vanguard Group, Inc. 31-Dec William Blair Investment Management, LLC 30-Sep BlackRock Institutional Trust Company, N.A. 31-Dec Matthews International Capital Management, L.L.C. 30-Sep BlackRock Asset Management North Asia Limited 31-Dec Capital World Investors 31-Dec Aberdeen Asset Management (Asia) Ltd. 30-Nov Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares William Blair Investment Management, LLC M M William Blair & Company, L.L.C M -7.08M Comgest S.A M M Columbia Wanger Asset Management, LLC M -3.68M Capital World Investors +5.40M +0.84M Jupiter Asset Management Ltd M -1.98M Fidelity Management & Research Company +4.28M +0.74M Driehaus Capital Management, LLC -6.06M -1.02M Manning & Napier Advisors, LLC +4.65M +0.72M Thornburg Investment Management, Inc M -0.63M Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15 FY16E FY17E Total operating Income 10, , , ,083.7 Growth (%) Other Income Total Revenue 11, , , ,803.7 Rent , ,130.6 Employee Expenses Power and Fuel 4, , , ,351.3 Other Expenses 1, Repairs & Maintenance Total Operating Expenditure 6, , , ,184.9 EBITDA 4, , , ,898.7 Growth (%) Depreciation 2, , , ,407.4 Interest Other Income PBT 2, , , ,009.2 MI / Profit from associates Total Tax , , ,363.1 PAT 1, , , ,646.1 Growth (%) EPS ( ) Cash flow statement Crore (Year-end March) FY14 FY15 FY16E FY17E Profit after Tax 1, , , ,646.1 Add: Depreciation 2, , , ,407.4 Add: Interest Paid (Inc)/dec in Current Assets 2, Inc/(dec) in CL and Provisions CF from operating activities 6, , , ,921.3 (Inc)/dec in Investments -3, , , (Inc)/dec in Fixed Assets -1, , , ,023.9 Others CF from investing activities -5, ,013.7 Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax , , ,731.2 Add: Interest Paid Others CF from financing activities -1, , , ,283.4 Net Cash flow , Opening Cash ,279.5 Closing Cash , ,903.7 Balance sheet Crore (Year-end March) FY14 FY15 FY16E FY17E Liabilities Equity Capital 1, , , ,896.7 Reserve and Surplus 16, , , ,219.1 Total Shareholders funds 18, , , ,115.8 Total Debt 2, , , ,518.1 Deferred Tax Liability 1, , , ,224.7 Others 1, , , ,214.2 Total Liabilities 23, , , ,072.8 Assets Gross Block 26, , , ,273.0 Accumulated Depreciation 11, , , ,173.7 Net Block 15, , , ,099.3 Capital WIP Total Fixed Assets 15, , , ,349.3 Investments 7, , , ,609.8 Inventory Debtors Loans and Advances 1, , , ,504.2 Other Current Assets Cash , ,903.7 Total Current Assets 3, , , ,697.5 Creditors Provisions 2, , , ,934.3 Other Current Liabilities 2, , , ,594.0 Total Current Liabilities 5, , , ,678.8 Net Current Assets -2, , Others Assets 2, , , ,095.0 Application of Funds 23, , , , Key ratios (Year-end March) FY14 FY15 FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios EBITDA Margin (%) PAT Margin (%) Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 7

8 ICICIdirect.com coverage universe (Telecom) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Bharti Airtel (BHATE) Buy 117, Bharti Infratel (BHAINF) Buy 69, Idea Cellular (IDECEL) Buy 38, Tata Comm. (VIDSAN) Buy 11, NA ICICI Securities Ltd Retail Equity Research Page 8

9 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai [email protected] ICICI Securities Ltd Retail Equity Research Page 9

10 ANALYST CERTIFICATION We /I, Bhupendra Tiwary MBA, Sneha Agarwal, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Bhupendra Tiwary MBA, Sneha Agarwal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Bhupendra Tiwary MBA, Sneha Agarwal, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 10