Bharti Infratel BUY RESULT REVIEW 3QFY19 25 JAN 2019

Transcription

1 RESULT REVIEW 3QFY19 25 JAN 2019 Bharti Infratel INDUSTRY TELECOM CMP (as on 24 Jan 2019) Rs 263 Target Price Rs 344 Nifty 10,850 Sensex 36,195 KEY STOCK DATA Bloomberg BHIN IN No. of Shares (mn) 1,850 MCap (Rs bn) / ($ mn) 486/6,829 6m avg traded value (Rs mn) 733 STOCK PERFORMANCE (%) 52 Week high / low Rs 356/242 3M 6M 12M Absolute (%) (0.1) (8.0) (23.2) Relative (%) (6.4) (6.3) (23.3) SHAREHOLDING PATTERN (%) Promoters 53.5 FIs & Local MFs 3.0 FPIs 42.3 Public & Others 1.2 Source : BSE Himanshu Shah himanshu.shah@hdfcsec.com Mansi Lall mansi.lall@hdfcsec.com Risk reward favorable Bharti Infratel s (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. BHIN witnessed loss of 39k tenants YoY to 174k or 18.3% decline. Despite high operating leverage of tower business, EBITDA decline has been of a modest 12% YoY; a key positive. This is owing to (a) increase in rental for surviving tenants as weaker players exited (b) high loading of 4G BTS and (c) cost rationalization (opex exenergy declined by 3.5% YoY). We remain positive on BHIN with TP of Rs 25x Dec-20E EPS (for merged entity). Key reasons are (a) stock has corrected by ~45% from peak (b) on account of savings on DDT (~Rs 5bn) and earnings accretion from Indus acquisition (c) healthy dividend yield of ~6% (d) uncertainty receding from Voda-Idea merger impact (e) growth resumption owing to robust data usage and (f) prognosis for rental renegotiations is weak in near term. BUY Key highlights 3QFY19 highlights: BHIN is yet to see the impact of ~2,540 tenants churn on financials as it has received termination notices but services continue. Revenue and EBITDA are better to that extent. Gross additions improved QoQ to 2,740 (vs. 2,341 in 1HFY19). Key con-call highlights: (1) BHIN s is witnessing increased demand for co-location as well as for new towers, which till now was restricted to loading. This is positive from growth perspective. (2) Jio offering its tower for sharing is a risk. However, BHIN hasn t witnessed any MSAs signed by Jio. (3) BHIN expects Indus merger to consummate by Jun-19. Exit penalties settled marginally positive: BHIN has settled exit penalties for Voda-Idea, Tata etc for Rs 10.7bn for BHIN + 42% of Indus (Rs 18bn for BHIN + 100% of Indus), ~Rs 6/sh. This is against overall liability of Rs 20/37bn for 42/100% of Indus i.e. settlement at ~50%. We had assumed nil receipt from exit penalty. Back of the envelope calculations reveal settlements at ~Rs k/tenancy lost (equal to six months rental) in trailing 15m since consolidation started taking place. BHIN will receive the settlement amounts in 36 EMIs along with 7% interest. Consolidated Financial Summary (BHIN + 42% of Indus) (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 20,409 22,598 (9.7) 21,201 (3.7) 134, , , , ,176 EBITDA 2,021 2,266 (10.8) 2,139 (5.5) 58,969 63,801 58,911 56,773 56,682 APAT 6,484 5, , ,470 25,437 25,437 26,124 25,824 Diluted EPS (Rs) P/E (x) EV / EBITDA (x) RoE (%) HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

2 Decline in rental revenue and EBITDA is due to 18% decline in tenancies YoY owing to Voda-Idea merger Exceptional item consists of provision made for disputed electricity arrears in 2QFY19 and receipt of exit penalty in 3QFY19 Quarterly Financial Snapshot: Consolidated (BHIN + 42% of Indus) (Rs mn) 3QFY18 2QFY19 3QFY19 YoY (%) QoQ (%) 9MFY18 9MFY19 YoY (%) Rental income 22,598 21,201 20,409 (9.7) (3.7) 67,837 63,599 (6.2) Energy and other reimbursements 13,955 15,482 15, (0.3) 40,437 45, Net Sales 36,553 36,683 35,849 (1.9) (2.3) 108, , Power and fuel 12,987 14,367 14, (1.3) 37,624 42, Rent 3,172 3,168 3,050 (3.8) (3.7) 9,385 9, Employee benefits expenses 1,254 1,222 1,242 (1.0) 1.6 3,733 3,693 (1.1) R&M expenses 2,266 2,139 2,021 (10.8) (5.5) 6,859 6,375 (7.1) Other expenses (3.1) (6.4) 2,795 2,472 (11.6) Total Operating Expenses 20,571 21,819 21, (2.1) 60,396 64, EBITDA 15,982 14,864 14,488 (9.3) (2.5) 47,878 44,548 (7.0) EBITDA ex energy 15,014 13,749 13,232 (11.9) (3.8) 45,065 41,635 (7.6) Depreciation 5,895 5,625 5,727 (2.8) ,741 16,741 (5.6) EBIT 10,087 9,239 8,761 (13.1) (5.2) 30,137 27,807 (7.7) Other Income (7.1) (17.4) 1,370 1, Finance costs/(income) 510 (442) (601) (217.8) 36.0 (226) (1,328) PBT 10,072 10,238 9,822 (2.5) (4.1) 31,733 30,761 (3.1) Tax 4,218 3,883 3,891 (7.8) ,856 12,095 (5.9) Xo (553) - (196) RPAT 5,854 5,998 6, ,877 18,862 (0.1) Energy spread 968 1,115 1, ,813 2, Margin Analysis (%) As % of Net Sales 3QFY18 2QFY19 3QFY19 YoY (bps) QoQ (bps) 9MFY18 9MFY19 YoY (%) Power and fuel Rent (22) (4) Employee benefits expenses (7) R&M expenses (54) (39) (50) Other expenses (67) (32) Total Opex EBITDA Margin (384) (95) (345) EBITDA Margin ex energy (97) (181) (97) EBIT Margin (353) (226) (239) RPAT Margin (17) Energy Spread* (86) (58) Tax Rate (80) (76) (119) *Energy spread = (energy revenue less power & fuel costs)/ energy revenue Page 2

3 YoY decline in tenancies is owing to Voda-Idea merger as overlapping tenancies of both the companies is considered as one now Growth in tenancies to be led by (a) moderation in churn (b) expansion by Jio and incumbents led by strong data usage growth. With 2x the BTS/tower for Bharti, 4G loading on existing towers is nearing to an end Increase in rental/tenant is owing to (a) loading charges on overlapping tenancies of Voda-Idea and (b) increase in rental for surviving tenants Operating KPIs 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 YoY (%) QoQ (%) No. of towers Bharti Infratel (consolidated)* 91,007 91,451 91,759 92,123 92, Bharti Infratel (standalone) 39,363 39,523 39,719 39,946 40, Indus Towers 122, , , , , (0.1) Number of tenants Bharti Infratel (consolidated) 213, , , , ,449 (18.3) (0.0) Bharti Infratel (standalone) 92,211 88,665 86,053 78,275 77,693 (15.7) (0.7) Indus Towers 288, , , , ,372 (20.2) 0.5 Net tenants added Bharti Infratel (consolidated) (6,612) (7,880) (4,819) (26,266) (63) Bharti Infratel (standalone) (2,327) (3,546) (2,612) (7,778) (582) Indus Towers (10,202) (10,319) (5,254) (44,018) 1,236 Tenants Churn Bharti Infratel (consolidated) 8,562 9,813 5,657 27,769 2,540 Bharti Infratel (standalone) 2,942 3,956 2,954 8,215 1,510 Indus Towers 13,381 13,945 6,436 46,557 2,452 Gross tenants added Bharti Infratel (consolidated) 1,950 1, ,503 2,477 Bharti Infratel (standalone) Indus Towers 3,179 3,626 1,182 2,539 3,688 Average sharing factor Bharti Infratel (consolidated) (20.7) (7.4) Bharti Infratel (standalone) (18.1) (5.6) Indus Towers (22.5) (8.6) Sharing rev./sharing tower/month (Rs) Bharti Infratel (consolidated) 82,794 79,861 80,014 76,865 74,299 (10.3) (3.3) Bharti Infratel (standalone) 87,739 83,716 84,316 82,621 83,040 (5.4) 0.5 Indus Towers 79,044 76,874 76,729 72,477 70,237 (11.1) (3.1) Sharing rev./sharing operator/month (Rs) Bharti Infratel (consolidated) 34,748 34,110 35,276 36,599 39, Bharti Infratel (standalone) 36,941 36,511 37,281 38,687 41, Indus Towers 32,654 32,741 33,753 34,961 37, ; Bharti Infratel Consolidated is 42% including proportionate share in Indus Page 3

4 Negative tenancy addition in FY20E is owing to potential exit by Voda-Idea of ~22k additional tenancies Key Model Assumptions FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Towers BHIN standalone 35,119 35,905 37,196 38,458 39,099 39,523 40,281 41,082 42,165 Indus 111, , , , , , , , ,741 BHIN + 100% Indus 146, , , , , , , , ,905 Net Additions-Towers BHIN standalone 1, ,291 1, ,083 Indus 2,494 1,189 2,934 3,939 2, ,069 1,389 BHIN + 100% Indus 4,466 1,975 4,225 5,201 3,490 1,333 1,402 1,869 2,472 Tenancies BHIN standalone 63,573 69,137 75,819 81,632 89,263 88,665 76,826 73,209 75,053 Indus 221, , , , , , , , ,706 BHIN + 100% Indus 285, , , , , , , , ,759 % chg YoY BHIN standalone (0.7) (13.4) (4.7) 2.5 Indus (3.6) (17.0) BHIN + 100% Indus (2.9) (16.1) (0.2) 4.7 Net Additions-Tenancies BHIN standalone 3,413 5,564 6,682 5,813 7,631 (598) (11,839) (3,616) 1,844 Indus 7,826 11,977 20,025 16,493 18,907 (10,505) (47,379) 3,047 12,630 BHIN + 100% Indus 11,239 17,541 26,707 22,306 26,538 (11,103) (59,219) (569) 14,474 Closing Tenancy BHIN standalone (x) Indus (x) BHIN + 100% Indus Sharing revenue/tenant (Rs/month) BHIN standalone 37,191 37,135 36,911 37,037 37,029 38,143 39,758 42,721 42,817 Indus 31,520 31,683 32,086 32,682 32,914 34,256 35,083 38,306 38,500 BHIN + 100% Indus 32,727 32,914 33,193 33,689 33,877 35,184 36,230 39,383 39,517 Sharing revenue/tower (Rs/month) BHIN standalone 66,995 69,387 73,193 77,080 81,592 86,320 82,446 78,778 76,257 Indus 62,036 64,118 68,250 72,553 75,825 78,882 72,090 71,369 73,425 BHIN + 100% Indus 63,206 65,383 69,446 73,653 77,222 80,682 74,612 73,190 74,128 Rental Revenue (Rs Mn) BHIN standalone (x) 27,441 29,569 32,103 34,989 37,968 40,720 39,477 38,458 38,089 Indus (x) 82,313 86,493 93, , , , , , ,060 BHIN + 100% Indus 109, , , , , , , , ,149 Page 4

5 We have assumed Energy EBITDA to decline as the FY18 energy spread at 8% is significantly higher than the management s guidance of 5-7% Further led by pressure on customer s core business we expect them to renegotiate on energy FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E EBITDA (ex-energy) (Rs Mn) BHIN standalone 17,501 19,969 21,997 24,123 26,516 28,913 27,893 26,627 25,755 Indus 47,057 52,905 58,576 65,170 69,229 72,519 64,371 62,848 65,197 BHIN + 100% Indus 64,558 72,874 80,573 89,293 95, ,432 92,263 89,475 90,952 EBITDA Margin % BHIN standalone Indus BHIN + 100% Indus Energy EBITDA (Rs Mn) BHIN standalone (x) 2,126 1,562 1, ,736 2,647 3,086 1,811 1,723 Indus (x) (3,020) 702 3,641 3,990 3,907 4,245 2,136 4,616 4,337 BHIN + 100% Indus (895) 2,264 5,583 4,926 5,643 6,892 5,222 6,427 6,060 EBITDA (incl energy) (Rs Mn) BHIN standalone (x) 19,627 21,531 23,940 25,059 28,252 31,560 30,979 28,438 27,478 Indus (x) 44,037 53,606 62,217 69,160 73,136 76,764 66,507 67,464 69,534 BHIN + 100% Indus 63,663 75,138 86,157 94, , ,324 97,485 95,902 97,012 APAT (Rs Mn) BHIN Standalone (RPAT) 11,974 11,574 27,252 13,687 27,047 24,399 27,846 15,344 14,484 (-) Dividend from Indus 4,050 2,200 16,407-9,510 10,010 11, BHIN Standalone (APAT) 7,924 9,374 10,845 13,687 17,537 14,389 16,585 15,344 14,484 Indus PAT (4,632) 8,690 21,933 27,219 28,454 31,643 24,850 25,666 27,000 (-) DDT 1,929 1,048 7,813-4,810 5, Indus Adjusted PAT (6,561) 7,643 14,120 27,219 23,645 26,353 24,850 25,666 27,000 Interest net of tax (Rs Mn) 4,774 4,774 BHIN (APAT) + 100% Indus (RPAT) 3,291 18,065 32,778 40,906 45,991 46,032 41,435 36,236 36,710 BHIN (APAT) + 100% Indus (APAT) 1,363 17,017 24,965 40,906 41,182 40,742 41,435 36,236 36,710 Source: Company, HDFC Sec Inst Research *Interest (net of tax) on Idea+Providence stake acquisition payout of Rs 9% Page 5

6 We have assumed Idea to opt for its entire 11.15% and Providence for its 3.35% out of 4.85% holding in Indus for Cash to arrive at outstanding shares of the merged entity Accordingly we have taken the O/s shares of BHIN at 2,661mn shares for TP derivation Pricing renegotiations by telcos of largest costs remains a key long-term risk. Jio has considerable network costs advantage vs. incumbents. BHIN runs risk over here. We haven t factored the same in our TP Valuation Snapshot: BHIN + 100% of Indus A B C D Target PE multiple (X) Base case Sep-20E PAT (Rs Mn) 36,592 36,592 36,592 36,592 Target Mcap(Rs Mn) 548, , ,795 1,097,754 O/s shares (Mn) 2,661 2,661 2,661 2,661 Value per share (Rs) Sensitivity of EPS and TP to 5% change in rental/tenant Avg Rental/tenant/month (BHIN Consol) (Rs) 36,000 FY18E avg tenancy (Nos) 308,000 EBITDA impact of 5% reduction in rentals (Rs mn) 6,653 PAT impact of 5% reduction in rentals (Rs mn) 4,457 EPS impact of 5% reduction in rentals (Rs) 1.7 % of FY18E EPS 12.2% A B C D Target PE multiple (X) Value per share impact (Rs) Source: HDFC sec Inst Research Page 6

7 Increase in estimates to factor higher than estimated rental/tenant Decline in FY21E PAT is owing to lower other/finance income due to higher dividend payout Change in estimates BHIN + 100% of Indus New Old Change Rs Mn FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E Revenue 146, , , , , , EBITDA 97,485 95,902 97,012 95,408 91,647 93, EBITDA Margin % PAT 41,435 36,236 36,710 40,243 34,562 37, (2.0) Source: HDFC sec Inst Research Peer Set Comparison Mcap CMP TP EPS (Rs/sh) EV/EBITDA (x) RoE (%) COMPANY RECO (Rs bn) (Rs) (Rs) FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Bharti Airtel 1, BUY (4.8) (8.6) (1.0) (63.4) (35.0) (295.1) 1.6 (2.6) (4.7) (0.6) Idea Cellular BUY 43 (11.6) (73.1) (53.5) (32.4) (2.9) (0.5) (0.6) (1.1) (16.0) (48.5) (26.9) (20.8) Bharti BUY Infratel Source: HDFC sec Inst Research Page 7

8 Consolidated Income Statement (BHIN Standalone + 42% of Indus) (Rs mn) FY17 FY18 FY19E FY20E FY21E Rental revenue 84,326 89,694 84,517 83,354 84,734 Energy reimbursements 49,910 55,202 60,955 62,494 64,442 Net Sales 134, , , , ,176 Growth (%) Energy costs 46,533 50,772 56,972 58,745 60,898 Lease rentals 11,628 12,615 12,702 12,988 13,507 Employee costs 4,678 5,002 4,941 5,130 5,386 Other expenses 12,428 12,706 11,945 12,214 12,702 Total Operating Cost 75,267 81,095 86,560 89,076 92,494 EBIDTA 58,969 63,801 58,911 56,773 56,682 EBIDTA Margin (%) EBIDTA Margin ex energy cost (%) EBIDTA Growth (%) (7.7) (3.6) (0.2) Depreciation 22,625 23,462 22,459 22,473 22,500 EBIT 36,344 40,339 36,453 34,300 34,182 Interest costs (4,413) (97) (2,078) (2,078) (1,530) Other income 1,456 2,326 2,412 2,613 2,831 PBT 42,212 42,762 40,943 38,990 38,543 Tax 14,742 17,325 15,506 12,867 12,719 APAT 27,470 25,437 25,437 26,124 25,824 EPS EPS Growth (%) 22.2 (7.4) (0.0) 2.7 (1.1) Consolidated Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 18,496 18,496 18,496 18,496 18,496 Reserves 136, , , , ,807 Total Shareholders Funds 154, , , , ,303 Long Term Debt 4,447 9,515 13,253 12,804 17,767 Current portion of LT Debt 12,903 19,069 23,513 23,136 - Total Debt 17,350 28,584 36,766 35,939 17,767 Non-current liabilities 21,408 16,286 15,743 17,040 17,040 TOTAL SOURCES OF FUNDS 193, , , , ,110 APPLICATION OF FUNDS Net Fixed Assets 138, , , , ,265 Other non-current assets 11,847 6,968 6,891 7,459 7,459 Trade Receivables 2,179 9,185 12,390 13,411 13,411 Cash & Equivalents 79,181 73,333 61,157 67,769 62,893 Other Current Assets 14,727 15,571 19,391 20,990 10,301 Current Assets 96,087 98,089 92, ,170 86,606 Trade Payables 6,890 18,580 21,540 23,316 2,275 Other CL & Provisions 46,315 6,869 8,264 8,945 8,945 Current Liabilities 53,205 25,449 29,804 32,261 11,220 Net current Assets 42,882 72,640 63,134 69,909 75,386 TOTAL APPLICATION OF FUNDS 193, , , , ,110 Page 8

9 Consolidated Cash Flow Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E Reported PAT 27,470 25,437 25,437 26,124 25,824 Depreciation 22,625 23,462 22,459 22,473 22,500 Interest (4,413) (97) (2,078) (2,078) (1,530) Working Capital Change (1,650) (10,736) (20,201) (163) (10,352) OPERATING CASH FLOW ( a ) 44,033 38,066 25,617 46,355 36,442 Capex (19,499) (19,374) (16,412) (15,004) (2,475) Free Cash Flow 24,533 18,692 9,205 31,352 33,967 Investments & Others (531) (243) (466) 730 (1,147) INVESTING CASH FLOW ( b ) (20,030) (19,617) (16,879) (14,274) (3,622) Capital Issuance (20,318) (0) Debt Issuance ,234 8,182 (826) (18,172) Interest 4, ,078 2,078 1,530 Dividend & others (6,679) (35,628) (31,174) (26,721) (21,053) FINANCING CASH FLOW ( c ) (22,280) (24,297) (20,915) (25,469) (37,695) NET CASH FLOW (a+b+c) 1,722 (5,848) (12,176) 6,612 (4,876) Closing C&CE 79,181 73,333 61,157 67,769 62,893 Key Ratios FY17 FY18 FY19E FY20E FY21E PROFITABILITY (%) EBITDA Margin EBITDA Margin excl energy cost EBIT Margin excl energy cost APAT Margin excl energy cost RoE RoIC RoCE EFFICIENCY Tax Rate (%) Asset Turnover (x) Debtors (days) Payables (days) Cash Conversion Cycle (days) (13) (24) (23) (25) 27 Net Debt/EBITDA (x) (1.0) (0.7) (0.4) (0.6) (0.8) Net D/E (0.4) (0.3) (0.2) (0.2) (0.3) Interest Coverage (8.2) (415.9) (17.5) (16.5) (22.3) PER SHARE DATA EPS (Rs/sh) CEPS (Rs/sh) DPS (Rs/sh) BV (Rs/sh) VALUATION P/E P/BV EV/EBITDA OCF/EV (%) FCF/EV (%) 11.3 (1.6) FCFE/Mcap (%) 11.1 (1.0) Dividend Yield (%) EV/Revenues Page 9

10 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 RECOMMENDATION HISTORY Bharti Infratel TP Date CMP Reco Target 8-Jan SELL Jan SELL Jan SELL Apr SELL Apr NEU Jul SELL Jul NEU Oct BUY Oct BUY Jan BUY Jan BUY 344 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 10

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