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Bharti Infratel: Good end to a great year - Views on News from Equitymaster
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Bharti Infratel: Good end to a great year
May 15, 2015

Bharti Infratel has declared its results for the fourth quarter and full year 2014-15. The company has reported a 5.6% YoY increase in revenues and an 18% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 5.6% YoY during the fourth quarter of the financial year 2014-15 (4QFY15).
  • The company's operating performance continues to be better than its topline performance. The operating margin improved from 41.3% in 4QFY14 to 45.4% in 4QFY15. The operating profit for 4QFY15 increased by 16% YoY.
  • The higher operating profit, lower depreciation (as a percentage of sales), a 20.3% YoY decline in interest costs and a 17.5% YoY increase in other income contributed to an increase in the net profit by 18% YoY during the quarter.
  • Total towers on a consolidated basis stood at 85,892 at the end of the quarter. Total co-locations stood at 182,294. Average sharing factor improved by 6% YoY. Sharing revenue per tower increased by 5.7% YoY during the quarter.
  • The company has declared a final dividend of Rs 6.5 per share.

Standalone financials: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Sales 27,899 29,467 5.6% 108,267 116,683 7.8%
Expenditure 16,373 16,098 -1.7% 64,266 66,642 3.7%
Operating profit (EBITDA) 11,526 13,369 16.0% 44,001 50,041 13.7%
Operating profit margin (%) 41.3% 45.4%   40.6% 42.9%  
Other income 1,445 1,698 17.5% 4,487 5,223 16.4%
Finance costs 826 658 -20.3% 3,997 2,902 -27.4%
Depreciation 5,153 5,608 8.8% 21,259 21,847 2.8%
Exceptional items - -   - -  
Profit before tax 6,992 8,801 25.9% 23,232 30,515 31.3%
Tax 2,268 3,226 42.2% 8,053 10,591 31.5%
Profit after tax/(loss) 4,724 5,575 18.0% 15,179 19,924 31.3%
Net profit margin (%) 16.9% 18.9%   14.0% 17.1%  
No. of shares         1,893.8  
Diluted Earnings per share (Rs)*         10.5  
P/E ratio (x)*         38.0  
* On a trailing 12 months basis

What has driven performance in 4QFY15?
  • Bharti Infratel reported a revenue growth of 5.6% 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 2.11 in 4QFY15 as compared to 1.99 in 4QFY14. Even on a sequential basis, the factor saw an increase of 1.4% as it had stood at 2.08 in 3QFY15. The sharing revenue per tower increased by 5.7% YoY. However, the sharing revenue per customer decreased by 0.4% YoY.

    Key Indicators (Consolidated)
      4QFY14 4QFY15 YoY Change 3QFY15 QoQ Change
    Total Towers (Nos.) 83,368 85,892 3.0% 85,064 1.0%
    Total Co-locations (Nos.) 167,202 182,294 9.0% 178,748 2.0%
    Average sharing factor  1.99 2.11 6.0% 2.08 1.4%
    Sharing revenue per tower per month (Rs) 67,942 71,828 5.7% 70,805 1.4%
    Sharing revenue per sharing operator (Rs) 34,155 34,011 -0.4% 33,970 0.1%

  • Bharti Infratel's operating margins stood at 45.4% during 4QFY15, which was higher than the 41.3% seen during the same period last year. This was largely on account of significant savings fuel costs and maintenance expenses (both of which declined marginally on a YoY basis) during the quarter.

    Cost Breakdown
      4QFY14 As % of sales 4QFY15 As % of sales
    Power & fuel 9,893 35.5% 9,835 33.4%
    Rent 2,235 8.0% 2,496 8.5%
    Employee related expenses 952 3.4% 1,033 3.5%
    Repairs & maintenance 2,459 8.8% 2,298 7.8%
    SG&A 834 3.0% 436 1.5%
    Total expenses 16,373   16,098  

  • Net profits increased by 18% 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 jump in other income, helped the growth at the bottom line level. The net margin improved from 16.9% in 4QFY14 to 18.9% in 4QFY15.
What to expect?
At the current price of Rs 400, the stock is trading at a multiple of 38 times its trailing twelve months earnings.

The company's performance in FY15 was exceptional. The management stated that the pace of growth would slow down going forward due to the higher base. However, there is no slowdown in demand for towers. The management re-iterated that demand for data services is growing at an exponential pace and the recent spectrum auctions stand testimony to that. The stated that 3G (and later 4G) rollouts by operators will become increasingly aggressive going forward.

On the margin front, the company continues to benefit from the replacement for older power systems with newer energy efficient ones. While it will be difficult for the company to increase the operating margin significantly, there is still scope for improvement in the net margin from these levels.

The company's cash flow generation remains strong despite increasing capex requirements. The management confirmed that the 90% dividend payout policy will continue. The capex for FY15 was higher by a staggering 32% YoY. This will be the case in the future as well. The company does not provide capex guidance but the management indicated that the capex outgo will increase going forward.

The long term fundamentals of Bharti Infratel remain strong. However, the current valuations offer no margin of safety. We maintain our view that investors should wait for better valuations to buy the stock.

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