Bharti Infratel IPO - The fine print - Edelweiss

We attended Bharti Infratel's analyst meet organised in the backdrop of the launch of its IPO on December 11, 2012. Below are key highlights of the meet:

Issue details

Bharti Infratel plans to raise ~INR39.7-45.3bn through an IPO in the INR210-240 per share price range. As per the terms of issue, 188.9mn shares will be issued—146.2mn new shares while four PE firms are offering for sale 42.7mn shares. The IPO proceeds will be utilised to install 4,813 new towers, upgrade and replace existing towers and other general corporate purposes. We will review the offer in detail in our IPO note.

Company background

The company is one of the largest tower infrastructure providers in India on consolidated basis, based on the number of towers it owns and operates, and the number of towers owned or operated by Indus, in which Bharti Infratel holds 42% equity interest. It has pan-India presence in all 22 telecommunication circles (4 overlapping with Indus). As of September 30, 2012, Bharti Infratel owned and operated 34,220 towers in 11 circles, while Indus operated 110,561 towers in 15 circles. Thus, its own towers and 42% interest in Indus are equivalent to 80,656 towers in India. The company posted revenue and PAT CAGR of 23% and 57%, respectively, over FY09-12. It has a stated dividend policy of total dividend payout between 30% and 50% of its net profit for the year or 100% of any dividend received from Indus, whichever is higher. Based on FY12 EBITDA and the upper end of the issue price of INR240, the company is valued at an EV/EBITDA of 13x. On standalone basis it is net cash company while the debt exists on account of Indus.

Robust business model; at cusp of growth

Bharti Infratel, with its tower sharing model, has pioneered a trend wherein telecom operators no longer need to build their own towers. The company derives over 80% of its revenue from its three major clients—Bharti Airtel, Vodafone and Idea. Further, we believe, it will benefit as rural telecom penetration (currently at ~38%) picks up along with an uptick in data usage. It currently has tenancy ratio of 1.9x, which will surge as the need for towers picks up. As per Analysys Mason, the number of towers in India is expected to post CAGR of 2.2% (FY12-17) to 420,000 from current 376,000, while tenancy ratio is expected to surge to 2.46x from current 1.7x over the same time period. We believe Bharti Infratel will be key beneficiary of this growth given its leadership position.

Source : Equity Bulls

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