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Worst Of Tenancy Problems Behind Us, Says Bharti Infratel

The country’s largest telecom tower company says the consolidation phase is finally nearing its end.

In an analyst meeting, the towers arm of Bharti Airtel said it expects demand for its towers to increase as data consumption picks up across the country. This comes after the company lost more than 45,500 tenants over the last four quarters.

As the demand for data continues to grow, the number of tower sites of the top three telecom operators can increase to more than 9 lakh towers from current 6 lakh tower sites, the company said. Moreover, it sees multiple new growth opportunities in fibre sharing, small cells, data centers, wifi offloading.

Of the incremental 3 lakh tenancies that are expected to come in, if the merged entity manages to get contracts for close to 50 percent of them, then its monthly rental income would be higher by Rs 550 crore, according to BloombergQuint’s calculations, assuming that the rentals remain the same.

For these tenancies, the company will have to incur incremental capital expenditure. However, this should not be of a concern as currently, Bharti Infratel is a debt-free company with cash in excess of Rs 3,500 crore on its book. Also, post-merger, the leverage ratio, i.e., net debt-to-EBITDA, would increase to a maximum of only 0.6 times.

Meanwhile, Infratel said the proposed merger with Indus Towers is in the last leg, with approvals pending from the Department of Telecommunications and the National Company Law Tribunal.

It provided disclosure regarding its tower agreement with telecom companies, which mitigates the renewal risk and secures future cash flows. According to the agreement, existing clients like Vodafone Idea, Bharti Airtel and Reliance Jio will have to approach the merged entity (Infratel-Indus) first for any new tower requirement in the next five years and renew at least one-third of its tenancies in the expiring year on current terms.

Completion of its merger with Indus Towers could possible re-rate the stock as it will not only boost the company’s earnings but also will likely remove the holding company discount. Currently, Bharti Infratel owns 42 percent stake in Indus Towers and investors the stake at a discount of more than 20 percent.

Bharti Infratel highlights the following merger benefits:

• Merger to save Rs 560 crore annually
• FY18 EPS would have been higher by 16 percent to Rs 15.6 per share
• First-half FY19 return on equity would have been higher by 265 basis points to 18.4 percent