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IPO News
Bharti Infratel - IPO Note - Subscribe - IIFL
Posted On : 2012-12-10 10:20:52( TIMEZONE : IST )
Company Background
Bharti Infratel is amongst the largest tower operators in India with ~81,000 towers including the proportionate ownership of ~46,500 towers of Indus Towers. Bharti Airtel owns 86% stake in the company and is the sole tenant on ~45% of the standalone Infratel towers. Bharti Infratel posted 16% revenue and 72% PAT cagr on consolidated basis over FY10-12 though RoE has been in single digits due to low asset turnover and leverage. Company however had higher tenancy of 1.85x in FY12 compared to 1.7x for the industry. It enjoys strong carrier relationship through its stake in Indus Towers and would benefit from tower expansion undertaken at Indus on behalf of JV partners. Both Indus and Bharti Infratel have complimentary tower portfolio and the latter is likely to benefit from pick up in tele density in category B & C circles.
Fresh issue + offer for sale; to use proceeds for new towers, site up gradation and green initiatives
Bharti Infratel issue size is pegged at ~189mn shares in the price band of Rs210-Rs240; of these 42.7mn shares are being offered by existing shareholders while the balance ~146mn shares constitute fresh issue. Post IPO, Bharti Airtel's stake would drop to 79.4%. The proceeds of Rs30.7bn-Rs35.1bn would be used for 1) installation of 4,813 towers over next 3 years at cost of Rs10.9bn 2) up gradation of existing towers for Rs12bn and 3) green initiatives at tower sites costing Rs6.4bn & other general corporate purposes.
Justifiable valuation discount to international peers; subscribe at the lower end of price band
We recommend investors to subscribe to the Bharti Infratel IPO at the lower end of its price range i.e. at Rs210. At the lower price range, Bharti would be valued at 9.6x FY14 EV/EBIDTA and 2x FY14 P/B which is at a discount to its international peers (avg ~16x CY13 EV/EBIDTA) though we believe the discount is justified given the lower RoE profile and industry overcapacity in the near term (as seen in industry tenancy of 1.7x).
