 "Bharti Infratel: Awaiting stronger 3G signals")
Expectation of a higher dividend, attractive valuations and growth prospects on the back of an uptick in the 3G telecom spectrum usage drove the Bharti Infratel stock 14 per cent up over the past week. The stock, which closed one per cent up, could see some upside in trade on Wednesday, given the announcement of a infrastructure sharing deal between Bharti Airtel and Reliance Jio post-market hours. The deal with Reliance Jio is likely to improve its tower utilisation and increase its rentals per tower.
Ankita Somani of Angel Broking said, “While the financial details of the deal are not known, it will lead to better cash flows for Bharti Airtel and higher tenancy ratio for Bharti Infratel.” The other triggers for the stock are the aggressive investments in 3G by incumbent operators and Bharti Infratel management clarifying that it will not pursue M&A activities in Africa.
The recent uptick in the Bharti Infratel scrip comes after underperformance over a one-year period due to static tenancy ratios, which could fall with consolidation and talks of eight per cent licence fee on tower revenues.
Given the company’s stand on Africa acquisition, Goldman Sachs analysts believe there is a low possibility of any big ticket acquisition, leaving room for Bharti Infratel to return money to shareholders. The research firm estimated the company was likely to pay a special dividend of Rs 3.5 a share in the March quarter of FY14, taking the total dividend for FY14 to Rs 9 a share.
Further, the analysts have increased earnings per share upwards on the back of an expected growth in data traffic. “At current FY14E multiples of 1.9 times its price to book value and return on equity of 7.7 per cent, the risk-reward is balanced with upside potential largely driven by faster 3G deployment and better-than-expected dividend payout,” said Goldman Sachs analysts, led by Sachin Salgaonkar. The analysts have a neutral rating with a price target of Rs 165.
Analysts at Phillip Capital said the company’s available at almost replacement cost. “The market perception of Bharti Infratel’s value will change over time, as the company takes measures to improve the capital structure and unlocks value for the share holders,” said the research firm’s Naveen Kulkarni and Vivekanand Subbaraman.
While regulatory issues and M&A are likely to influence the stock, the key operational parameter would be the company’s ability to improve its tenancies which have been stuck in the 1.91 times to 1.93 times range over the last five quarters. Every additional tenant substantially improves profitability as rentals improve with costs increasing only marginally. The major cost for telecom tower companies is power which is a pass through.
One of the triggers for the increase in tenancies/rentals is the rapid expansion of 3G coverage by operators. Bharti and Idea for example have increased their cell site count from 18,000 at the start of FY12 to 45,000 currently, up 150 per cent. Higher investments in 3G and increased data usage (last four quarters leading to a doubling of the data volumes) is expected to lead to higher rentals and tenancies improving the company’s revenues and operating profits. Morgan Stanley analysts estimated that data which accounted for 10 per cent of revenues for the telecom sector is expected to double its contribution by FY2016.
Ankita Somani of Angel Broking said, “While the financial details of the deal are not known, it will lead to better cash flows for Bharti Airtel and higher tenancy ratio for Bharti Infratel.” The other triggers for the stock are the aggressive investments in 3G by incumbent operators and Bharti Infratel management clarifying that it will not pursue M&A activities in Africa.
The recent uptick in the Bharti Infratel scrip comes after underperformance over a one-year period due to static tenancy ratios, which could fall with consolidation and talks of eight per cent licence fee on tower revenues.
Given the company’s stand on Africa acquisition, Goldman Sachs analysts believe there is a low possibility of any big ticket acquisition, leaving room for Bharti Infratel to return money to shareholders. The research firm estimated the company was likely to pay a special dividend of Rs 3.5 a share in the March quarter of FY14, taking the total dividend for FY14 to Rs 9 a share.
Further, the analysts have increased earnings per share upwards on the back of an expected growth in data traffic. “At current FY14E multiples of 1.9 times its price to book value and return on equity of 7.7 per cent, the risk-reward is balanced with upside potential largely driven by faster 3G deployment and better-than-expected dividend payout,” said Goldman Sachs analysts, led by Sachin Salgaonkar. The analysts have a neutral rating with a price target of Rs 165.
Analysts at Phillip Capital said the company’s available at almost replacement cost. “The market perception of Bharti Infratel’s value will change over time, as the company takes measures to improve the capital structure and unlocks value for the share holders,” said the research firm’s Naveen Kulkarni and Vivekanand Subbaraman.
While regulatory issues and M&A are likely to influence the stock, the key operational parameter would be the company’s ability to improve its tenancies which have been stuck in the 1.91 times to 1.93 times range over the last five quarters. Every additional tenant substantially improves profitability as rentals improve with costs increasing only marginally. The major cost for telecom tower companies is power which is a pass through.
One of the triggers for the increase in tenancies/rentals is the rapid expansion of 3G coverage by operators. Bharti and Idea for example have increased their cell site count from 18,000 at the start of FY12 to 45,000 currently, up 150 per cent. Higher investments in 3G and increased data usage (last four quarters leading to a doubling of the data volumes) is expected to lead to higher rentals and tenancies improving the company’s revenues and operating profits. Morgan Stanley analysts estimated that data which accounted for 10 per cent of revenues for the telecom sector is expected to double its contribution by FY2016.