Bharti Infratel shares soar on CLSA 'buy'

Correction in the stock overdone and valuations look attractive: Brokerage

Bharti Infratel shares surged more than six per cent on Friday after global brokerage CLSA gave a “buy” call on the stock. Shares of Bharti Infratel closed at Rs 307.6 apiece, up Rs 17.80 or 6.14 per cent.

This rally comes as a breather for Bharti Infratel’s scrips which have been under selling pressure ever since the news about a possible merger of Vodafone and Idea emerged. Bharti Infratel’s shares have lost nearly 13 per cent since January 27, when Idea officially confirmed the merger talks.

According to CLSA, the correction in Bharti Infratel is overdone as the investors are considering the most pessimistic scenario. Investors fear the ongoing mergers & acquisitions (M&A) activity in the telecom sector could impact the tenancies of the company. Apart from the Vodafone & Idea merger, Airtel’s merger with Telenor is also in the pipeline. Once these deals are done, to rationlise the operations, the new merged entities could cut down their subscriptions to towers wherever it is redundant.

“Our analysis reveals that Infratel’s current stock price is factoring in a one-time tenancy impact of 68,000 sites for Indus Towers and Infratel and zero tower and tenancy additions beyond FY19. A tenancy hit of 68,000 is possible only if Idea-Vodafone reduce their combined sites by 35 per cent (96k) and Bharti Airtel decides to shut all of Telenor’s 25k sites. This is a pessimistic scenario,” CLSA said in the report.

The brokerage also said the potential Vodafone-Idea merger would not only help Bharti Infratel acquire towers owned by Idea but also gives an opportunity to Bharti Infratel to acquire 11 per cent stake owned by Idea in Indus Towers. The company currently owns 42 per cent of the equity in Indus Towers.