Indus Towers - Strong tower growth - ICICI Securities

Indus Towers (erstwhile Bharti Infratel), pro-forma (post-merger) EBITDA came in 10% higher than expected at Rs35.5bn (up 8.6% YoY) due to 1) higher penalty revenue of Rs4bn and 2) lower other expenses on merger-related adjustments. Net tenancy addition was higher at 4,204 (I-Sec: 3,700) on lower exits (354 vs 713 in Q2FY21) and higher tower adds (3,416). It has also announced a dividend of Rs17.8/sh as agreed in revised merger agreement. Bharti has tested 5G using dynamic spectrum sharing in mid-band (1,800/2,300MHz) clouds medium term tenancy demand. Vodafone Idea going concern risk hasn't receded. We incorporate merger, which has led to an optical rise in EBITDA. We cut our DCF-based target price to Rs240 (from Rs245) and downgrade rating to HOLD (from Buy). We await analyst day for outlook on new businesses - small cell and fibre.

- Gross tenancy addition healthy: Indus net tenancy base rose 4,204 on the back of healthy gross additions, which rose to 4,505 (vs average 3,467 in the past four quarters). Bharti should have continued network roll out; and it has been driven equally by both coverage and capacity requirements. Tenancy churn has reduced to just 354 (vs average 1,860 since Q3FY20) on completion of integration by VIL. Our concern is rising single tenancy which puts pressure on margins; and Bharti testing 5G using dynamic spectrum sharing which could delay tenancy demand for 5G.

- Rental per tenant (RPT) rose 5.4% YoY to Rs44,845. RPT growth was driven by higher penalty revenue (Rs4bn vs run-rate Rs1.8bn), and adjusted RPT was flattish. The negative impact of equalisation on RPT is likely offset by fall in sharing ratio. Number of tenancy for which exits notice has been issued but equipment not removed continues to remain high at 4,474 which is also helping RPT look high.

- EBITDA rose 8.6% YoY to Rs35.5bn: Indus revenue rose 4.5% YoY to Rs67bn; within this, rental revenue rose 7.4% YoY to Rs43bn. Energy revenue declined 0.2% YoY to Rs24bn. EBITDA benefited from Rs4bn penalty revenue recognition and Rs0.8bn benefit from merger, which was largely in other expenses (dip 57% YoY to Rs1bn). Depreciation was higher by Rs1.5bn (one-time) again on alignment of depreciation policy. Net profit rose to Rs13.6bn, up 2.2% YoY. It has announced dividend of Rs17.8/sh as per merger agreement; and we expect another Rs11/sh final dividend which should take total dividend to Rs31/sh for FY21.

- Energy margin to be negative in FY21: EBITDA (ex-energy) rose 10% YoY to Rs36bn. Energy margin was negative now third quarter in a row on rise in disputes and lower contribution of fixed energy contracts. The company has guided losses would continue even in Q4FY21. Albeit, Indus continues to discuss with operators to shift to fixed energy on larger cause, which may help it retain long-term energy margin outlook of 0-3%.

Shares of Indus Towers (erstwhile Bharti Infratel) was last trading in BSE at Rs.231.7 as compared to the previous close of Rs. 241.25. The total number of shares traded during the day was 256390 in over 4952 trades.

The stock hit an intraday high of Rs. 247.9 and intraday low of 229. The net turnover during the day was Rs. 60790886.

Source : Equity Bulls

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