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Bharti Infratel: Strong operating performance - Views on News from Equitymaster
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Bharti Infratel: Strong operating performance
Aug 5, 2014

Bharti Infratel has declared its results for the first quarter for the financial year 2014-15 (1QFY15). The company has reported an 8.4% YoY increase in total revenues and a 29.4% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 8.4% YoY during the first quarter of the financial year 2014-15 (1QFY15).
  • The company's operating performance was better than its topline performance. The operating margin improved from 39.9% in 1QFY14 to 41.5% in 1QFY15. The operating profit for 1QFY15 increased by 12.7% YoY.
  • The higher operating profit coupled with lower depreciation charges and lower interest costs led to an increase in the net profit by 29.4% YoY during the quarter.
  • Total towers on a consolidated basis stood at 83,778 at the end of the quarter. Total co-locations stood at 170,320. Average sharing factor improved by 5.8% YoY. Sharing revenue per tower increased by 5.6% YoY during the quarter.

Consolidated financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Sales 26,220 28,427 8.4%
Expenditure 15,757 16,637 5.6%
Operating profit (EBITDA) 10,463 11,790 12.7%
Operating profit margin (%) 39.9% 41.5%  
Other income 1,556 1,172 -24.7%
Interest expense/(income) 1,044 784 -24.9%
Depreciation 5,528 5,253 -5.0%
Exceptional items - -  
Profit before tax 5,447 6,925 27.1%
Tax 1,871 2,297 22.8%
Profit after tax/(loss) 3,576 4,628 29.4%
Net profit margin (%) 13.6% 16.3%  
No. of shares   1,890.0  
Diluted Earnings per share (Rs)*   8.6  
P/E ratio (x)*   32.0  
* (Book value as on 31st December 2013)

What has driven performance in 1QFY15
  • Bharti Infratel reported a revenue growth of 8.4% 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 2.02 in 1QFY15 as compared to 1.91 in 1QFY14. Even on a sequential basis, the factor saw an increase of 1.5% as it had stood at 1.99 in 4QFY14. The sharing revenue per tower increased by 5.6% YoY and the sharing revenue per customer increased by 0.1% YoY.

    Key Indicators (Consolidated)
      1QFY14 1QFY15 YoY Change 4QFY14 QoQ Change
    Total Towers (Nos.) 82,321 83,778 1.8% 83,368 0.5%
    Total Co-locations (Nos.) 158,038 170,320 7.8%   167,202 1.9%
    Average sharing factor  1.91 2.02 5.8% 1.99 1.5%
    Sharing revenue per tower per month (Rs) 65,222 68,886 5.6% 67,942 1.4%
    Sharing revenue per sharing operator (Rs) 34,079 34,113 0.1% 34,155 -0.1%

  • Bharti Infratel's operating margins stood at 41.5% during 1QFY15, which was higher than the 39.9% seen during the same period last year. This was largely on account of the savings in every cost head except for that of SG&A and employee costs which saw a marginal increase during the quarter (all as percentage of sales).

    Cost Breakdown
    Cost Breakdown 1QFY14 As % of sales 1QFY15 As % of sales
    Power & fuel 10,002 38.1% 10,566 37.2%
    Rent 2,158 8.2% 2,255 7.9%
    Employee related expenses 866 3.3% 973 3.4%
    Repairs & maintenance 2,232 8.5% 2,260 8.0%
    SG&A 499 1.9% 583 2.1%
    Total expenses 15,757   16,637  

  • Net profits increased by 29.4% YoY during the quarter. The higher operating margins as well as lower depreciation and finance charges helped the growth at the bottom line level. However this improvement was mitigated to some extent by the lower other income during the quarter. The net margin improved from 13.6% in 1QFY14 to 16.3% in 1QFY15.
What to expect?
At the current price of Rs 275, the stock is trading at a multiple of 32 times its trailing twelve months earnings.

The management stated that the exponential growth in data services in the telecom industry will be sustained. The company's capex plans are in line with the demands of the operators. The company is witnessing good growth in tenancies and in the quarter, the tenancy ratio passed the milestone of 2 times.

The management re-iterated its commitment to return excess cash to shareholders. To this end the company has declared an interim dividend of Rs 4 per share. This is in line with the management's stated policy of paying out 60-80% of post capex net profit. The management also indicated that they might even consider the possibility of a buyback. However, as of now there are regulatory issues related to this.

The management has also clarified that that there is no government proposal to bring telecom tower companies under the license structure. They also clarified that they are not interested in buying tower assets in Africa. However they would consider buying tower assets of telecom players in India, Bangladesh and Sri Lanka.

The long term fundamentals of Bharti Infratel are strong. However, at these valuations, the stock price already discounts most of the future growth prospects. We are currently updating our FY17 financial estimates for the company. We recommend that investors do not buy the stock at these levels.

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