Bharti Infratel is a Bharti Group company promoted by Bharti Airtel . Bharti Infratel is a provider of tower and related infrastructure facility in India. On a consolidated basis Bharti Infratel is one of the largest tower infrastructure provider in India spreading its web of network across all 22 circles.
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Leading telecommunication infrastructure operator in India: Bharti Infratel is not only the pioneer of tower infrastructure sharing concept in India, but is also today the leader with over 33,000+ towers (standalone), & 109,500+ towers belonging to Indus Towers in which Bharti Infratel has a 42% stake, thereby taking its consolidated number of towers to 79,000+. These towers are spread across 22 communications circles with some of them in the remotest and tough terrains giving the company an edge over its competitors. Hence company is extensively present across the country with huge number of telecom towers.
Entry barrier: Bharti Airtel, Vodafone & Idea which together have 68% revenue share in the Indian telecom industry, are equity holders of Indus tower where Bharti Infratel owns 42% equity. This would guarantee consistent business and revenues from the three large telecom companies thereby leaving little chance of competition. Also, the business being a huge capital intensive business requiring large regulatory formalities, new entrant are restricted.
High growth potential will be the key to growth: Wireless telecommunication subscribers' demand for data service is increasing with the newer technologies. In Metro & A-category circles, telecommunication service providers will seek to expand their network to roll-out 3G services & upcoming technologies like 4G. On the other hand, B & C category circles still have untapped consumer potential for voice-data services which will ultimately result in robust demand for tower network in times to come. Company has huge cash on its books of Rs 1,994 mn (as on 30th Sep, 2012) which leaves the door open for both organic & inorganic growth. Generally MSA between company & party are for 5 to 15 years which leads to stable income for the company.
Risk Mitigation & cost control by internal control: Company with various developments had tried to mitigate some of its risk. Diesel is a major cost of input which is required to power its towers; hence any change in diesel price affects profitability of company which was mitigated by introducing "Ratecard" for tenant & solar-equipment for powering tower. Also in consultation with IBM, company has automated many processes, aimed to achieve operational efficiency.
Valuation & Recommendation: At the upper end of its price band of Rs 240 (and Rs 230 for retail investors), Bharti Infratel Ltd. Is available at an EV/EBITDA of 12.17x (and 11.69x for retail investors). This is at a discount to its global peers which have an EV/EBITDA ratio of more than 18x and GTL Infra, the Indian peer which is also trading at 18x. Considering the huge scope for telecom penetration, presence of strong promoters in both Bharti Infratel and Indus Towers and robust financials of the company, we believe that this is good, solid long term investment story.
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