Apart from rentals, revenues also comprise energy costs, passed on to customers. The results were impacted by the fact that tenancy additions were muted — six per cent from a year before and 18 per cent sequentially. Analysts at JM Financials say this was the lowest in seven quarters.
The company indicated these were due to uncertainty on account of spectrum auctions and allocations to specific circles. However, while Bharti Infratel’s tenancy growth was lower than Indus, its standalone revenue growth at about four per cent was higher than the latter's 1.2 per cent. There was higher customer demand for loading third-generation services (3G) equipment on Bharti Infratel’s towers.
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An improvement in rentals per tenant by 0.6 per cent, however, partly compensated. The third factor influencing rental revenue was tower growth, up 0.6 per cent sequentially. These helped rental revenue grow 2.4 per cent on a sequential basis.
On profitability, growth in Ebitda (earnings before interest, taxes, depreciation and amortisation) was marginally below estimates, due to fluctuations in energy compensation by tower users. Energy spread, the difference between costs borne and compensated, came down to 5.3 per cent from the 12.3 per cent in the March quarter. Analysts had expected the seasonal highs of March to get corrected in the June quarter. The company indicated that over the long term, this margin number should be five to seven per cent, with a potential to increase if the company could tap efficient sources of power such as solar.
Net profit at Rs 576 crore was up 3.3 per cent sequentially and 24 per cent over a year, in line with estimates. This was aided by other income, up 27 per cent sequentially and 84 per cent over a year, on the back of about Rs 7,000 crore of cash invested in the fixed income market. The company did not rule out acquisitions and is looking for value-accretive buys.
Bharti indicated additional opportunities from in-building solutions, the smart cities initiative, wi-fi growth and linking of fibre-based networks. Loading of 3G equipment has doubled over the past year.
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Most analysts have maintained their estimates for FY16 and expect the company to benefit from faster data rollout, as data volumes continue to double year-on-year. The stock fell 1.5 per cent to Rs 450 on Thursday; the results were announced on Wednesday evening. At the current price, the stock is trading at 13 times the FY17 estimate of enterprise value to Ebitda and 32 times on the price to earnings metric.
About half the analysts covering the stock have a 'buy' (and 25 per cent a ‘sell’) rating, with a consensus target price of Rs 418, below the current one. Given the 20 per cent rise in share price over three months and higher valuations, investors should await a correction before taking exposure to the stock.