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Published on 10/01/2019 11:37:08 AM | Source: ICICI Securities Ltd

Hold Bharti Infratel Ltd For Target Rs. 290 - ICICI Sec

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Fiber is a big opportunity, but still sometime away

We strongly believe Bharti Infratel is in a sweet spot to buy the fiber assets of Bharti Airtel (Bharti)/Vodafone Idea (VIL) and monetise the large opportunity arising from rise in penetration of fiberised towers. However, near-term earnings growth remains challenging given more tenancy exits expected from VIL and lower revenue per tower restricting aggressive deployment of data-only tenancies. RJio has completed large part of network rollout (97% population coverage), while higher share of RJio’s incremental rollout for BHIN also remains blur.

The stock rose 13% since our note dated 3 December 2018, and is closer to our target price of Rs290. Therefore, we downgrade the stock to HOLD (from Add) but maintain our estimates and target price.

The stock rose 13% since our note dated 3 December 2018, and is closer to our target price of Rs290. Therefore, we downgrade the stock to HOLD (from Add) but maintain our estimates and target price.

Downside risk: 1) Greater competitive intensity in the Indian telecom industry, leading to operators resorting to lower tenancy rollout, 2) further consolidation in India telecom, and 3) long-term dilution in ROCE from new business.

 

Key takeaways from analyst meet

1. Bharti Infratel and Indus Tower merger

* BHIN sees limited scope for synergy benefits due to complementary assets, nonetheless, some saving can be achieved on Rs3bn-4bn head office cost.

* Bharti/VIL will have equal rights in merged entity for holding at least 12.5% stake. Bharti holds 12.7% stake post transfer of its stake to Nettle Infrastructure.

* Bharti Airtel and VIL’s holding will not be subjected to any lock-in post-merger.

* The merged entity will enjoy right of first refusal from Bharti and VIL (Indus circles only) for a period of five years post-merger with some exemptions.

* Several renewals are coming up in FY22/FY23. In order to mitigate renewal risk, BHIN has said that an operator opting for renewal of at least 33% of expiring tenancies for next five years will benefit from same terms and conditions of MSA on all renewed tenancies and new additions.

* It needs two crucial approvals – NCLT and DOT (including FDI) for merger to consummate, and it has already received approval from CCI, SEBI and stock exchanges. It now expects to complete merger by June-19 (from earlier Mar-19).

 

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