HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters RESULTS REVIEW 4QFY19 25 APR 2019 Bharti Infratel NEUTRAL Growth conundrum Bharti Infratel’s (BHIN) 4QFY19 results were in-line but weak operationally. This was on account of tenancy decline of 1% QoQ. We downgrade BHIN to Neutral with TP of Rs 273 @ 20x FY21E EPS (vs. Rs 354 earlier @ 25x). Our multiple downgrade is driven by risk of incremental tenancy loss from VIL and long term risk of rental renegotiations by customers. HIGHLIGHTS OF THE QUARTER BHIN reported revenues of Rs 36bn (-1.7% YoY, -1.1% QoQ). Rental revenue stood at Rs 21.1bn (-3.5% YoY, +0.6% QoQ) including ~Rs 1bn of exit penalties from VIL (incremental ~Rs 450mn QoQ). Net tenant’s decline QoQ by 1,725. VIL besides exit of ~70k overlapping tenancies has guided for additional reduction of ~20-25k towers. We believe this is playing out and may hamper FY20 tenancies. We have thus reduced our target PE multiple from 25x to 20x. Incremental tenancy demand is still subdued (mostly loading) despite robust data usage growth. BHIN is yet to see the impact of 4,308 tenants (~2,540 in 3Q) churn on financials as it has received termination notices but services continue. EBITDA was at Rs 14.9bn (-6.4/-0.9% YoY/QoQ). Excluding exit penalties, EBITDA decline would be 12.5% YoY. Despite YoY decline of 16% in tenancies and high operating leverage in business, modest EBITDA decline is positive. PAT was flat YoY at Rs 6.1bn. PAT would have declined by 16% YoY but for exit penalties. BHIN declared a second interim dividend of Rs 7.5 and total Rs 15 in FY19, dividend yield of 5%. Near term outlook is feeble with weak new tenants’ addition and risk of further tenancy loss from VIL. STANCE Merger of Indus and consequent savings in DDT (~Rs 5bn) and healthy dividend yield (~5%) are key positives. Tenancy growth is key re-rating trigger. Tariff increase by telcos may accelerate future rollout and act as catalyst for higher than expected tenancy increase. That said, tenancy reduction (~20-25k) by VIL as per their guidance is key risk. Tower offerings by Jio/ATC for co- location are additional risk. We presume ATC has sizeable tower portfolio but limited tenants as it anchor customer (Tata Tele) has shut business. Pricing renegotiations by telcos remains key long-term risk. We foresee this playing out gradually post the stake sale by promoters and mostly from FY22 as large portfolio comes up for renewal. Consolidated Financial Summary (BHIN + 42% of Indus) (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY17 FY18 FY19 FY20E FY21E Net Sales 21,086 20,962 0.6 21,857 (3.5) 134,236 144,896 145,823 146,009 149,583 EBITDA 2,028 2,021 0.3 2,179 (6.9) 58,969 63,801 60,012 56,644 56,843 APAT 6,076 6,484 (6.3) 6,060 0.3 27,470 25,437 25,295 25,494 26,087 Diluted EPS (Rs) 3.3 3.5 (6.3) 3.3 0.3 14.9 13.8 13.7 13.8 14.1 P/E (x) 18.2 19.7 19.8 19.7 19.2 EV / EBITDA (x) 7.5 7.2 8.0 8.4 8.2 RoE (%) 16.3 15.7 16.1 17.6 17.9 Source: Company, HDFC sec Inst Research INDUSTRY TELECOM CMP (as on 25 Apr 2019) Rs 271 Target Price Rs 273 Nifty 11,642 Sensex 38,731 KEY STOCK DATA Bloomberg BHIN IN No. of Shares (mn) 1,850 MCap (Rs bn) / ($ mn) 501/7,134 6m avg traded value (Rs mn) 1,713 STOCK PERFORMANCE (%) 52 Week high / low Rs 339/242 3M 6M 12M Absolute (%) (3.1) 2.2 (16.7) Relative (%) (10.7) (12.7) (29.0) SHAREHOLDING PATTERN (%) Dec-18 Mar-19 Promoters 53.5 53.5 FIs & Local MFs 2.0 1.6 FPIs 43.4 43.9 Public & Others 1.1 1.0 Pledged Shares* - - Source : BSE, * % of total Himanshu Shah [email protected]+91-22-6171-7315
12
Embed
NEUTRAL Growth conundrum INDUSTRY TELECOM (as on 25 … Infratel - 4QFY19 - HDFC sec...HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
RESULTS REVIEW 4QFY19 25 APR 2019
Bharti Infratel NEUTRAL
Growth conundrumBharti Infratel’s (BHIN) 4QFY19 results were in-line but weak operationally. This was on account of tenancy decline of 1% QoQ. We downgrade BHIN to Neutral with TP of Rs 273 @ 20x FY21E EPS (vs. Rs 354 earlier @ 25x). Our multiple downgrade is driven by risk of incremental tenancy loss from VIL and long term risk of rental renegotiations by customers. HIGHLIGHTS OF THE QUARTER BHIN reported revenues of Rs 36bn (-1.7% YoY, -1.1%
QoQ). Rental revenue stood at Rs 21.1bn (-3.5% YoY, +0.6% QoQ) including ~Rs 1bn of exit penalties from VIL (incremental ~Rs 450mn QoQ).
Net tenant’s decline QoQ by 1,725. VIL besides exit of ~70k overlapping tenancies has guided for additional reduction of ~20-25k towers. We believe this is playing out and may hamper FY20 tenancies. We have thus reduced our target PE multiple from 25x to 20x. Incremental tenancy demand is still subdued (mostly loading) despite robust data usage growth.
BHIN is yet to see the impact of 4,308 tenants (~2,540 in 3Q) churn on financials as it has received termination notices but services continue.
EBITDA was at Rs 14.9bn (-6.4/-0.9% YoY/QoQ). Excluding exit penalties, EBITDA decline would be 12.5% YoY. Despite YoY decline of 16% in tenancies and
high operating leverage in business, modest EBITDA decline is positive.
PAT was flat YoY at Rs 6.1bn. PAT would have declined by 16% YoY but for exit penalties.
BHIN declared a second interim dividend of Rs 7.5 and total Rs 15 in FY19, dividend yield of 5%.
Near term outlook is feeble with weak new tenants’ addition and risk of further tenancy loss from VIL.
STANCE Merger of Indus and consequent savings in DDT (~Rs 5bn) and healthy dividend yield (~5%) are key positives. Tenancy growth is key re-rating trigger. Tariff increase by telcos may accelerate future rollout and act as catalyst for higher than expected tenancy increase.
That said, tenancy reduction (~20-25k) by VIL as per their guidance is key risk. Tower offerings by Jio/ATC for co-location are additional risk. We presume ATC has sizeable tower portfolio but limited tenants as it anchor customer (Tata Tele) has shut business.
Pricing renegotiations by telcos remains key long-term risk. We foresee this playing out gradually post the stake sale by promoters and mostly from FY22 as large portfolio comes up for renewal.
Decline in rental revenue and EBITDA is due to 16% decline in tenancies YoY owing to Voda-Idea merger Increase in other expenses is on account of higher charity and donation costs YoY by ~Rs 300mn Increase in energy spread QoQ is due to seasonality
YoY decline in tenancies is owing to VIL merger as overlapping tenancies of both the companies is considered as one now Tenancies growth to be led by (a) moderation in churn post VIL merger (b) expansion by incumbents led by strong data usage growth and (c) fund infusion. 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 VIL and (b) increase in rental for surviving tenants
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
BHARTI INFRATEL : RESULTS REVIEW 4QFY19
Page | 6
Valuation Snapshot: BHIN + 100% of Indus
A B C D Target PE multiple (X) 15.0 20.0 25.0 30.0 Base case FY21E PAT (Rs Mn) 36,330 36,330 36,330 36,330 Target Mcap(Rs Mn) 544,949 726,598 908,248 1,089,897 O/s shares (Mn) 2,661 2,661 2,661 2,661 TP before incorporating decline in rental/tenant (Rs) 205 273 341 410 Impact on TP of 5% decline in rental/tenant (27) (36) (45) (54) TP after incorporating decline in rental/tenant 178 237 296 356 Source: Company, HDFC sec Inst Research
Sensitivity of EPS and TP to 5% change in rental/tenant Avg Rental/tenant/month (BHIN Consol) (Rs) 39,000 Avg tenancy (Nos) 305,000 EBITDA impact of 5% reduction in rentals (Rs mn) 7,137 PAT impact of 5% reduction in rentals (Rs mn) 4,782 % of FY19 Consol PAT 13.8% EPS impact of 5% reduction in rentals on Consol EPS (Rs) 1.8 A B C D Target PE multiple (X) 15.0 20.0 25.0 30.0 Value per share impact (Rs) 27 36 45 54 Source: HDFC sec Inst Research
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
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
Date CMP Reco Target 13-Apr-18 337 SELL 280 25-Apr-18 325 NEU 312 6-Jul-18 339 SELL 280
Disclosure: I, Himanshu Shah, CA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.