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Bharti Infratel: Growth momentum intact - Views on News from Equitymaster
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Bharti Infratel: Growth momentum intact
Mar 4, 2015

Bharti Infratel has declared its results for the third quarter for the financial year 2014-15 (3QFY15). The company has reported an 8% YoY increase in revenues and a 23.5% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 8% YoY during the third quarter of the financial year 2014-15 (3QFY15).
  • The company's operating performance was better than its topline performance. The operating margin improved from 41.3% in 3QFY14 to 43.2% in 3QFY15. The operating profit for 3QFY15 increased by 12.9% YoY.
  • The higher operating profit, lower depreciation (as a percentage of sales), a 12.1% YoY decline in interest costs and a 32.6% YoY increase in other income contributed to an increase in the net profit by 23.5% YoY during the quarter.
  • Total towers on a consolidated basis stood at 85,064 at the end of the quarter. Total co-locations stood at 178,748. Average sharing factor improved by 6.1% YoY. Sharing revenue per tower increased by 6.1% YoY during the quarter.

Consolidated financial performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Sales 27,311 29,488 8.0% 80,368 87,216 8.5%
Expenditure 16,028 16,755 4.5% 47,893 50,544 5.5%
Operating profit (EBITDA) 11,283 12,733 12.9% 32,475 36,672 12.9%
Operating profit margin (%) 41.3% 43.2%   40.4% 42.0%  
Other income 917 1,216 32.6% 3,042 3,525 15.9%
Finance costs 792 696 -12.1% 3,171 2,244 -29.2%
Depreciation 5,252 5,568 6.0% 16,106 16,239 0.8%
Exceptional items - -   - -  
Profit before tax 6,156 7,685 24.8% 16,240 21,714 33.7%
Tax 2,051 2,616 27.5% 5,785 7,365 27.3%
Profit after tax/(loss) 4,105 5,069 23.5% 10,455 14,349 37.2%
Net profit margin (%) 15.0% 17.2%   13.0% 16.5%  
No. of shares         1,890.6  
Diluted Earnings per share (Rs)*         10.1  
P/E ratio (x)*         35.9  
* On a trailing 12 months basis

What has driven performance in 3QFY15?
  • Bharti Infratel reported a revenue growth of 8% YoY during the quarter. This was achieved by the growth in number of towers as well as an improvement in the tenancy ratio during the quarter.

  • The average sharing factor (or tenancy ratio) improved to 2.08 in 3QFY15 as compared to 1.96 in 3QFY14. Even on a sequential basis, the factor saw an increase of 1.5% as it had stood at 2.05 in 2QFY15. The sharing revenue per tower increased by 6.1% YoY. However, the sharing revenue per customer decreased by 0.5% YoY.

    Key Indicators (Consolidated)
      3QFY14 3QFY15 YoY Change 2QFY15 QoQ Change
    Total Towers (Nos.) 82,813 85,064 2.7% 84,303 0.9%
    Total Co-locations (Nos.) 163,370 178,748 9.4% 174,270 2.6%
    Average sharing factor  1.96 2.08 6.1% 2.05 1.5%
    Sharing revenue per tower per month (Rs) 66,760 70,805 6.1% 69,740 1.5%
    Sharing revenue per sharing operator (Rs) 34,124 33,970 -0.5% 34,016 -0.1%

  • Bharti Infratel's operating margins stood at 43.2% during 3QFY15, which was higher than the 41.3% seen during the same period last year. This was largely on account of significant savings fuel costs which decreased as percentage of sales during the quarter.

    Cost Breakdown
      3QFY14 As % of sales 3QFY15 As % of sales
    Power & fuel 10,310 37.8% 10,540 35.7%
    Rent 2,278 8.3% 2,390 8.1%
    Employee related expenses 924 3.4% 1,001 3.4%
    Repairs & maintenance 2,079 7.6% 2,298 7.8%
    SG&A 422 1.5% 498 1.7%
    Total expenses 16,013   16,727  

  • Net profits increased by 2.5% YoY during the quarter. The higher operating margins as well as lower depreciation (as a percentage of sales), lower finance charges as well as a big jump in other income, helped the growth at the bottom line level. The net margin improved from 17.2% in 3QFY14 to 15% in 3QFY15.
What to expect?
At the current price of Rs 362, the stock is trading at a multiple of 35.9 times its trailing twelve months earnings.

The company's performance remained strong in the quarter. Mobile data consumption in the country has been growing by leaps and bounds and the company has been a direct beneficiary. The increase in the number of co-locations was the highest in the last eleven quarters possibly as a result of the demand from Reliance Jio. The two companies had signed an agreement in September 2014.

The company's margins were boosted by a significant fall (as a percentage of sales) in fuel costs. This was a result of the fall in diesel prices on a YoY basis as well as the seasonality factor (less air conditioning requirement in the winter).

The company's cash flow generation remains strong despite increasing capex requirements due to rapid tower roll-outs. Indian telcos are focusing increasingly on their capex requirements to the rapidly growing demand for data services and also to counter a possibly aggressive entry of Reliance Jio this year. Bharti Infratel is in the ideal situation to meet this demand with its strong portfolio of towers.

The long term fundamentals of Bharti Infratel remain strong. However, the current valuations offer no margin of safety for investors. Thus, we maintain our view that investors should not buy the stock at these levels.

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