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Bharti Infratel: Good start to the year - Views on News from Equitymaster
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Bharti Infratel: Good start to the year
Jul 29, 2013

Bharti Infratel declared its results for the first quarter (1QFY14) for the financial year 2013-14. The company has reported an 8.5% YoY increase in total revenues and a 67.6% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 8.5% YoY during the first quarter of the financial year 2013-2014(1QFY14).
  • Operating margins improved by 3.5% YoY to 40.2% during the quarter.
  • Higher operating margins coupled with higher other income increased net profits by 67.6% YoY during the quarter.
  • Total towers on a consolidated basis stood at 82,321 at the end of the quarter. Total co-locations stood at 158,038. Average sharing factor as well as sharing revenue per tower improved by 0.5% YoY and 2% YoY during the quarter.

Consolidated financial performance snapshot
(Rs m) 1QFY13 1QFY14 Change
Sales 24,165 26,220 8.5%
Expenditure 15,306 15,670 2.4%
Operating profit (EBDIT) 8,859 10,550 19.1%
Operating profit margin (%) 36.7% 40.2%  
Other income 543 1,469 170.5%
Interest expense/(income) 849 1,044 23.0%
Depreciation 5,396 5,528 2.4%
Exceptional items - -  
Profit before tax 3,157 5,447 72.5%
Tax 1,023 1,871 82.9%
Profit after tax/(loss) 2,134 3,576 67.6%
Minority interest - -  
Net profit 2,134 3,576 67.6%
Net profit margin (%) 8.8% 13.6%  
No. of shares   1,888.8  
Diluted Earnings per share (Rs)*   6.07  
P/E ratio (x)*   23.7  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 1QFY14?
  • Bharti Infratel reported a revenue growth of 8.5% YoY during the quarter. This was achieved by the growth in average rent per tower, 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 1.91 in 1QFY14 as compared to 1.9 in 1QFY13. However, on a sequential basis, the factor was flat. The sharing revenue per tower as well as the sharing revenue per sharing customer grew by 2% YoY and 1.4% YoY respectively. However on a sequential basis, the two factors saw a decline of 2.5% QoQ each.

    Key Indicators (consolidated)
      1QFY13 1QFY14 YoY Change 4QFY13 QoQ Change
    Total Towers (Nos.) 79,452  82,321 3.6% 82,083 0.3%
    Total Co-locations (Nos.) 151,458 158,038 4.3% 156,608 0.9%
    Average sharing factor 1.90 1.91 0.5% 1.91 0.0%
    Sharing revenue per tower per month (Rs) 63,922 65,222 2.0% 66,919 -2.5%
    Sharing revenue per sharing operator (Rs) 33,622 34,079 1.4% 34,956 -2.5%

  • Bharti Infratel's operating margins stood at 40.2% during 1QFY14, which was higher than the 36.7% seen during the same period last year. This was largely on account of the savings in every cost head except for that of power & fuel which saw an increase during the quarter (all as percentage of sales).

    Cost Breakdown
      1QFY13 As % of sales 1QFY14 As % of sales
    Power & fuel 8,863 36.7% 9,990 38.1%
    Rent 2,670 11.0% 2,158 8.2%
    Employee related expenses 805 3.3% 866 3.3%
    Repairs &maintenance 2,183 9.0% 2,232 8.5%
    SG&A 785 3.2% 424 1.6%
    Total exp. 15,306   15,670  

  • Net profits increased by 67.6% YoY during the quarter. This was on account of higher operating margins during the quarter. Profit growth was also helped by a jump in other income during the quarter.
What to expect?
At the current price of Rs 144.1, the stock is trading at a multiple of 23.7 times its trailing twelve months earnings.

As of 11th June, 2013, Bharti Infratel Ventures Ltd is now merged with Indus Towers. Post this, the IRU (Indefeasible Right to Use) agreement between Bharti Infratel Ventures Ltd and Indus ceases to exist. Therefore the current quarter results reflect the effects of this merger. As a result of the merger, there was a positive impact on EBITDA to the extent of Rs 143 m and of Rs 350 m on the profit after tax.

The management continues to remain optimistic of the future prospects for the company. The reasons for this is the expected growth on the data side as well as return of pricing power to some extent in the telecom sector. However, we still believe that the risk reward ratio is still skewed for the company. Therefore we continue to maintain our 'Sell' view on the stock.

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