Indus Towers Ltd. share price target

We upgrade BHIN to Neutral from Sell with revised TP of Rs 312. Bharti Infratels (BHIN) 4QFY18 revenue and EBITDA were in-line, though subdued. Loss of 7,880 tenancies was the key negative. Sustainably higher energy margin at 6.8/8% in FY17/18 (11% in 4QFY18) vs. guidance of 4-6% is positive.

Revenues (on a proportionate consolidation basis) came in at | 3662 crore, (flat YoY, down 3.5% QoQ). Core rental revenues declined 1.0% YoY to | 2185.7 crore, lower than our estimate of | 2208.8 crore while energy revenues grew 2.6% YoY to | 1476.5 crore, better than our expectation of | 1438.4 crore. Net co-locations exit at 7880 was more than our anticipated net exits of 4000, as the company witnessed the impact of gross exits of 9813 on a consolidated basis (our estimate - gross exits of 6600 tenancies), reflecting the pressure...

Consol. revenue was flat QoQ (+4% YoY) at INR36.6b (2% beat). EBITDA, too, came in flat QoQ at INR15.9b (+1% YoY, 1% beat). Consol. margin shrunk ~25bp QoQ (120bp YoY) to 43.5% (15bp miss). Rental revenue declined 3% QoQ to INR21.9b; rental EBITDA declined 5% QoQ to INR14.3b (in-line) due to tenancy exits (potentially because of shutdowns by smaller telcos). This, however, was partly offset by 6% QoQ growth in energy revenue to INR14.8b, leading to a 68% QoQ jump in energy EBITDA to INR1.6b. Net finance income of INR827m led to a 4% QoQ (+2% YoY) jump in PAT to INR6b (10% miss).

ICICI Securities Ltd | Retail Equity Research Revenues (on a proportionate consolidation basis) came in at | 3655.3 crore, up 7.5% YoY, 0.2% QoQ, in line with our estimate of | 3650.4 crore. Core rental revenues grew 6.7% YoY to | 2259.4 crore, in line with our estimate of | 2262 crore, with sharing revenues per tower down 0.5% QoQ. Net co-locations exit at 6612 was more than our anticipated net exits estimates of 5046, as the company witnessed the impact of gross exits of 8562 on a consolidated basis...

For the quarter ended December 2017, on y-o-y basis, sales grew 11%. OPM improved from 46.1% to 47.0% which saw OP go up 13%. Share of profit in JV grew 6% after which PBT after Share of profit in JV went down 5%. After...

Reiterate Sell with TP of Rs 305 (earlier Rs 310). Bharti Infratels (BHIN) 2QFY18 revenue and EBITDA were in-line. Highest ever loss of 6,612 tenancies was the key negative. BHIN has treated 5,601 tenancies as churn though the actual exits hasnt yet happened. Instant loss of tenancies on merger of Voda-Idea is the key negative trigger that would lead to further multiple de-rating of BHIN. These could impact BHINs EBITDA by ~15% and EPS 25%.

Muted rental revenue at INR22.6b (flat QoQ, in-line) arrested consolidated revenue growth ( flat QoQ; +8% YoY) at INR36.6b (in-line). Energy revenue grew 1% QoQ to INR14b.Consolidated EBITDA declined 1% QoQ ( grew 8% YoY) to INR16b (1% beat) dueto 22% QoQ decline in energy EBITDA to INR1b, partly offset by 1% QoQ rise in rental EBITDA to INR15b. Consolidated margin declined ~50bp QoQ to 43.7%(70bp miss). Net finance cost of INR15m (v/s net finance income of INR510m in2QFY18) led to a sharp 8% QoQ PAT decline to INR5.9b (our estimate: INR8.5b). Colocations dropped 3% QoQ to213,476, resulting from net tenancy exits of 6,612 (possibly driven by smaller operator closures), diluting gross colocations adds of 1,950. However, a 1% QoQ rise in tenancy rate to INR34.8k coupled with 20% QoQ saving in other expenses led to some solace - rental EBITDA margin grew 60bp to 66.4%. Energy margin declined 210bp QoQ (flat YoY) to 6.9% due to 3% QoQ rise in power & fuel cost.

In absence of details of mix of tenancy losses, timing and event uncertainties, our numbers are on business-as-usual basis. But, we provide the impact of each of the events separately. Bharti Infratels (BHIN) share price has declined from a peak of Rs 480 to Rs 373 (22%) in last two months. Despite recent decline, we reiterate our Sell rating with revised TP of Rs 310 (vs. Rs 387). Our TP is based on 20x Dec-19E EPS (Rs 356) for business as usual (vs. 24x earlier) less impact of Rs 60/sh from Voda-Idea merger (vs. Rs 39/sh earlier) and likely acquisition of Voda-Idea stake in Indus at EV of Rs 5mn/tower (+Rs 15/sh).

BHIN is currently trading at 11x and 10x FY19/20E EV/e. Sell with a TP of Rs 387 @ 10x Sep-19E EV/e Bharti Infratels (BHIN) 2QFY18 revenue and EBITDA were in-line, led by higher energy margin. But operating performance was weak owing to feeble rental/tenant and the meagre new tenants addition. Street optimism on BHIN is driven by the prospect of better capital allocation via the likely acquisition of Vodafone and Ideas stake in Indus. This may be followed by BHINs parent Bharti diluting in favour of a consortium of investors. We dont see this as a game-changer, except for plugging the DDT leak.

The three leading wireless telecommunications service providers in India by revenue - Bharti Airtel, Vodafone and Idea Cellular are the largest customers of Bharti Infratel. The company has been the industry pioneer in adopting green energy initiatives for its operations. Q-o-Q September 2017 quarter consolidated results...