Strong tenancy additions bolster Sept quarter show for Bharti Infratel

The company, which has received the go ahead on merger with Indus Towers, expects the trend to continue in the near term

Bharti Infratel reported a robust September quarter (Q2) performance, led by a beat on revenue growth. The company posted a 5.4 per cent increase in consolidated revenues on a sequential basis as against estimates of 3 per cent growth. Within this, while rental revenues were up 3.4 per cent due to a sharp rise in tenancies, lower exits and higher tenancy rates, energy revenues grew by 9 per cent. This was better than estimates by 3-5 per cent. 

The key takeaway was the uptick in tenancy additions. Consolidated net tenancies were up by over 2,000 as compared to a decline posted in Q1. Analysts at Motilal Oswal Research say this is the first time Bharti Infratel has seen additions of over 1,000 in the last 10 quarters. Further co-location exits dropped to 493, the lowest in the past 15 quarters, as against more than twice that number in the previous quarter. 

The company indicated that the tenancy addition and reduction in churn is expected to be a steady trend and is driven by the increasing demand for data consumption. The next trigger for the tower sector, which could accelerate the need for additional towers, is the launch of 5G over the next couple of years.  

While revenue growth was positive, the company reported negative energy margins for the second quarter in a row. Overall operating profit and margins missed estimates largely due to the losses in energy. This was due to certain disputes with operators and also faulty billing by energy providers. The company continues to guide for 0-3 per margin band for the full year with the number expected to be closer to the lower end given the preference of operators for the pass through nature of contracts. 

While the company has taken some guarantees from Vodafone Idea against receivables, the key factor for the company, which has received approval for merger with Indus Towers, would be Vodafone’s survival. Though uncertainty related to Vodafone remains, analysts at JP Morgan are overweight on the stock. They believe the company’s valuations at 5 times one-year forward enterprise value to operating profit is attractive and offers deep value for investors.