Indus Towers Ltd. share price target

25 April 2019 BHIN reported muted performance witnessing continued negative net tenancies, pulled down by exits. revenue/EBITDA declined 1% QoQ to INR36b/14.9b (4% miss) led by flat rental revenue at INR21b. Rental EBITDA fell 4% QoQ on increasing opex, dragging rental margins by 280bp. PAT at INR6.1b declined 6% QoQ (-5% YoY, 14% miss) due to EBITDA de-growth and lower net finance income. For FY19, revenue/EBITDA grew 1%/-6% YoY, while PAT was flat YoY. Expect completion over the next few months, (2) Most exits from VIL have come in; adopting a wait-and- watch approach in case there are more, (3) Management indicated that it is witnessing an uptick in gross tower additions. BHIN continued to report net tenancy deletions. Management indicated that majority of exits are behind and investment in data network rollout should accelerate tenancy additions. We have marginally tweaked our revenue/EBITDA est.

Consolidated revenue stood at Rs36.0bn (-1% qoq, -1.7% yoy). Rental revenues stood at Rs20bn, down 8% yoy (3.4% below estimates). Energy reimbursements increased 1% yoy and was down 3.4% qoq (3% below estimates). Rental revenues for 3Q and 4Q are adjusted for exit penalties of Rs550mn and Rs997mn, respectively. Net tenancies, on a consolidated basis, declined by 1725 vs. 63 in the last quarter. Consolidated EBITDA was Rs14.9bn (-0.9% qoq, -6.4% yoy). EBITDA margin stood at 41.4% (-206bps yoy and +10bps qoq). Other...

BHIN witnessed the full impact of tenancy exits by Vodafone Idea, resulting net tenancy decline of 63 on a QoQ basis. Consolidated revenue de-grew 0.4% QoQ / 1% YoY. Rental revenues was declined by 1.1% QoQ, while energy reimbursement increased (10.6% YoY). EBITDA margins was at 41.3% (-240bps YoY/+80bps QoQ) due energy margin outperformance, exit penalty payments and lower cost. BHIN has laid out a tenancy exit penalty claim structure for ~Rs2,000cr. BHIN will receive Rs90cr each for next 12 quarters, balance Rs900cr will be...

We remain positive on BHIN with TP of Rs 344 @ 25x Dec-20E EPS (for merged entity). Bharti Infratels (BHIN) 3QFY19 results were better than estimates. BHIN rental revenue and EBITDA ex energy was -9.7%/-11.9% YoY. PAT was up 11% YoY owing to higher finance income. 7.3% QoQ improvement in rental/tenant (13% YoY) was a key positive surprise. We believe this is due to the reset of rentals for existing tenants.

For the quarter ended December 2018, sales grew 1% to Rs 1733.20 crore. OPM grew 260 basis points to 48.0% which saw OP grow 7% to Rs 831.70 crore. Other income grew 30% to Rs 26.30 crore. Interest income increased 19% to Rs 118.8 crore. Depreciation was down 2% to Rs 274.80 crore. Thus PBT increased 13% to Rs 702.00 crore. Share of profit in JV fell 9% to Rs 717.70 crore. Thus PBT after Share of profit in JV grew 7% to Rs 919.70 crore. As tax increased...

Revenues (on a proportionate consolidation basis) came in at | 3640.2 crore, better than our estimate of | 3567.4 crore. Core rental revenues at | 2096.1 crore YoY (-1.1% QoQ) were better than our expectation of | 1999.9 crore (down 5.7% QoQ). We note that rental revenues include one-time exit charge of ~| 55.3 crore. Energy revenues came in at | 1544 crore vs. our estimate of | 1567 crore EBITDA came in at | 1512 crore (I-direct estimate of | 1354.5 crore), up 1.8% QoQ, with EBITDA margins at 41.6 %( down 104 bps QoQ),...

revenue declined 1% QoQ to INR36.4b (in-line) in 3QFY19, but consol. EBITDA increased 1% QoQ to INR15b a significant 10% beat. The EBITDA outperformance can be ascribed to the 7% increase in rental rates on account of exit penalties amounting INR553m, loading and the favorable impact of falling tenancies. Subsequently, rental margin expanded 30bp QoQ (290bp beat). Gross colocation addition improved to 2,477 (v/s 1,503 in 2Q), but exits meant that net colocation was flat. Energy EBITDA grew 13% QoQ (2.5% miss). Adjusted for the exceptional item in 2Q, PAT was up 4% QoQ to INR6.5b (16% beat). For 9MFY19, revenue grew 1% YoY, EBITDA declined 6% YoY, while PAT was flat YoY. (1) Charges for tenancy exits have been settled at INR20b, with INR11b cash settlement via recurring revenue of INR900m for the next 12 quarters. Three points from the 3QFY19 results are comes in as a major positive.

Management indicated that site cancellations have largely been concluded and the huge data growth is likely to drive the need for high network investment. This would be seen in macro site requirements, as telcos will need to make the network dense, besides building other layers of the network like fiber sharing, small cells, IBS, WiFi hotspot and other managed services. But Bharti Infratel does not plan to build ahead of telcos requirements. Further, we understand that Bharti Infratels dominant position in the tower market is weakening as the future of its large clientele is uncertain, while the new entrant is going solo towards network deployment. Newer technologies like IBS, small cell are being done independently by operators, while Bharti Infratel is slow in the roll-out. Our current estimates build revenue/EBITDA/PAT decline of 0%/11%/10% in FY19, and a similar trend should follow in FY20.

We attended the Analyst Day of Bharti Infratel wherein the management apprised on the Indus merger update and its aspirational growth path ahead. They maintained that merger with Indus is on track (currently awaiting NCLT approvals) and is expected to be complete by June, 2019. As a targeted area for future growth, the company has identified small cells, in-building solutions, fibre sharing, Wi-Fi, smart cities and managed services. Management also envisages these new services contributing at least a third of overall revenues, in the next five years. We note that amid...

The company during the quarter reported co-locations reduction of 27769 basis exit notices received. This is 13.7% of the total consolidated tenancies as on June 2018. However as at Sep 2018, there are cumulative 4,225 co-locations for which though the exit notices have been...