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Weak Telco Financials Could Dent Bharti Infratel’s Plans; Stock Falls

With the telecom sector struggling with pricing pressures and excessive leverage, Bharti Infratel (Infratel), which counts the top telcos as its clients, has been under pressure. Its stock has declined over 18 per cent over the last year on worries of tenancy growth, given the weak balance sheets of its clients and consolidation in the sector.

The firm, in a recent interaction with analysts, allayed fears regarding growth in tenancies and potential growth avenues. Given the higher churn after consolidation in the sector, there were worries about tenancies. The Infratel management indicated that each of the major telcos would need 300,000 4G sites in the sub-1 GHz spectrum to meet customer demand on network coverage, capacity and quality. Currently, the companies have 180,000-220,000 sites each.

Analysts at Kotak Institutional Equities, however, believe there is no case, at least for Vodafone Idea and Bharti, to opt for a network of 300,000 sites unless there is a quick upward inflection in wireless industry economics.

Next, the worry is about Jio. The operator has decided to form a separate tower company that will house its tower and fibre assets, and it may use this rather than Bharti to install its towers. Further, with Vodafone Idea rationalising its network, the tenancy growth in the medium term may depend a lot more on Bharti Airtel, say analysts at SBICAP Securities.

The other growth driver that Infratel is banking on is opportunities in fibre-sharing and Smart City implementation.

Both Bharti and Vodafone Idea have indicated they will monetise their tower/fibre assets, which will lead to fibre-sharing. This should help Infratel’s plans to get into the fibre-leasing business, by acquiring assets or laying out its own.

Along with this, small cells and 5G are potential growth drivers for the company. However, scaling up of these businesses will take time and may not be immediate triggers for the stock. The company expects the new revenue streams to account for a third of its turnover over the next four years.

While the improvement in return ratios after its merger with Indus —expected to be completed by May — is a positive, it has largely been factored in. While valuations are not demanding, the induction of a strategic partner and lowering of the holding company discount could lead to stock rerating. – Business Standard

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