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Why Bharti Infratel Is Trading At A Five-Year Low

Bharti Infratel has declined by nearly a fourth so far in October, the biggest monthly drop since listing. Here’s why...

A telecom tower stands of the city skyline at dusk. (Photographer: Waldo Swiegers/Bloomberg)
A telecom tower stands of the city skyline at dusk. (Photographer: Waldo Swiegers/Bloomberg)

Shares of Bharti Infratel Ltd. are trading at their lowest in five years as investors fear that cost cuts by telecom operators after a Rs 92,000-crore blow in adjusted gross revenue dispute will hurt growth of the tower arm of India’s second-biggest carrier.

The stock has declined by nearly a fourth so far in October—the biggest monthly drop since listing—to hit a five-year low of Rs 193 apiece, according to Bloomberg data.

India’s top court ruled that telecom operators will have to include revenue from non-core operations to calculate levies. The carriers will have to pay penalty and interest, the Supreme Court had said in its order last week. Among other operators, Bharti Airtel Ltd. will have to pay Rs 21,682 crore and Vodafone Idea Ltd. Rs 28,309 crore to the Department of Telecommunications.

Why Bharti Infratel Is Trading At A Five-Year Low

Analysts said telecom operators are incapable of paying thousands of crores as dues and penalties as they continue to bleed from a tariff war unleashed by Mukesh Ambani’s Reliance Jio Infocomm Ltd. And higher payouts may prompt telecom operators to reduce costs, limiting them from expanding coverage and forcing them to cut tenancies. For a telecom operator, tower rental cost—a part of network cost—is one of the major expenses.

A fall in the number of tenants would hurt Bharti Infratel’s growth as it earns revenue from telecom operators that put up antennae on its towers.

After the merger of Vodafone India Ltd. and Idea Cellular Ltd., the combined entity had cut costs by lowering tenancies. That led to a decline in Bharti Infratel’s tenancies on its towers. The impact on revenue, however, was less due to penalties and high tower rentals charged from the operators.

Reliance Jio’s near completion of its wireless capital expenditure cycle poses another risk for the tower company.

This, according to Morgan Stanley, may put Bharti Infratel’s “existing tenancies and future growth at risk”. Operating profit of Bharti Infratel could fall about 23 percent in the financial year ending March 2021 if the company loses nearly 15 percent of its existing tenants, the brokerage said in note dated Oct. 24.

Of the total 1,73,406 tenancies of Bharti Infratel, more than half belongs to Bharti Airtel, nearly one-third belongs to Vodafone Idea, while the remaining 13 percent is Reliance Jio’s, according to data compiled by BloombergQuint.