Bharti Infratel - IPO Note - Eastern Financiers

Bharti Infratel Limited (Bharti Infratel) is a tower and related infrastructure providing company of Bharti Group, having a PAN-India presence in all the 22-Circles. It is one of the largest tower infrastructure providers in terms of number of towers owned and operated by a company. As per the latest available data, Bharti Infratel own and operates 34,220 towers spread across 11 telecommunications circles while Indus, in which the company has a 42% equity interest, operates 110,561 towers spread across 15 telecommunications circles.

Highlights

- Tower Infrastructure business is a capital intensive business having significant capital expenditure required to acquire and develop towers, high costs incurred to comply with local laws and entering into long-term contracts between tower providers and wireless service providers. Bharti Infratel, with its huge tower network and catering to Bharti, Vodafone and Idea which together account for 68% of pan -India network load, enjoys a distinct competitive advantage over existing and potential competition.

- Strong parentage and brand also provides a big advantage to the Company in the form of better access to Capital and enhanced business opportunities.

- Bharti Infratel and Indus have MSAs with the leading wireless telecommunications service providers in India. The long term contract agreement and the adverse consequences of contract termination provide stability to Bharti Infratel business throughout the term of the MSAs thereby providing comfortable visibility of future revenues.

- Bharti Infratel has a significant presence in B-category and C-category telecommunications Circles, while Indus operates in the metros and Acategory and B-category telecommunications Circles. As wireless telecommunications subscribers' demand for data services increases, wireless telecommunications service providers in the metros and Acategory Circles will seek to expand their existing networks to accommodate the roll out of 3G services, as well as newer technologies such as 4G. This would be very beneficial for Indus. Also, with rural penetration at just 38%, the rural telecom Infrastructure space would be a very good growth story in the future, benefiting Bharti Infratel.

- Low Debt-equity ratio coupled with good cash-flows provide comfortable scenario in a capital-intensive business.

Key Risks & Concerns

- Decline in demand can lead to lower revenue
- High dependence on factors affecting telecommunication Industry
- Competition may lead to margin compression
- Policy paralysis could hamper growth

Valuations & Recommendations

Bharti Infratel is a premier player in the Telecom Infrastructure sector. Huge Tower Network, Wide presence, Strong brand name & Parentage and Comfortable Balance-Sheet makes the Company a fundamentally sound one. The issue is priced at 2.93 times its H1FY13 annualized Book-value at the upper end of the price band. We recommend investors to SUBSCRIBE to the issue.

Source : Equity Bulls

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