Bharti Infratel - Gross adds impacted due to lockdown - ICICI Securities

Bharti Infratel's (BHIN) net tenancy dipped by 366 in Q1FY21; gross tenancy adds decelerated to 862 (impacted from lockdown), but churn also fell to 1,228. Fall in churn rate increases visibility of net tenancy growth as gross add recovers; however, we see lower incremental profit / RoCE due to rise in single tenant towers. Uncertainty on AGR resolution continues, so does the risk of VIL remaining a going concern. Our stress test shows, if VIL shuts shop, BHIN's tenancy, revenue and EBITDA (recurring cash) would decline by 36%, 32% and 48% vs our base case estimates (refer). This remains the biggest risk to our unchanged BUY rating. We raise EPS by 11% each for FY21E / FY22E on lower depreciation, while our target price remains unchanged.

Earnings call today at 2.30PM IST.

- Gross tenancy adds hit due to lockdown: Consolidating Indus Towers' 42% stake proportionately, BHIN's net tenancy base dipped by 366 (I-Sec: net add of 2,050). This was due to weak underlying gross additions, which declined to 862 (vs 2,498 in Q4FY20), due to impact of lockdown on logistical issues. Tenancy churn has also reduced to 1,228 (vs 2,067 in Q4FY20), which provides visibility of net tenancy growth as gross additions improve in subsequent quarters. Notably, per a news article, Bharti Airtel is planning network expansion and recently signed a deal with Nokia. However, we see rise in single tenant towers, which means incremental revenues will yield much lower profits / RoCE in absence of visibility on additional tenants.

- Rental per tenant (RPT) dipped 0.9% QoQ to Rs42,023. RPM decline is likely due to impact of equalisation which declines each year, and lower penalty income which dipped to Rs543mn (vs Rs1.07bn in Q4FY20) on lower collection and is accounted on cash basis. RPT continues to benefit from 3,474 tenancies that have given cancellation notice but have not removed equipment, hence are continuing to pay rent. We see rental income decline as these tenancies physically exit the towers.

- EBITDA down 6.8% YoY on lower energy spread: BHIN's consolidated revenues fell 5.6% YoY / 3.3% QoQ to Rs35bn; within this, rental revenues dipped 0.8% YoY / 0.4% QoQ to Rs22.4bn. Energy and pass-through revenues declined 13.1% YoY / 8.1% QoQ to Rs12.6bn. Energy margin came in at a negative 2.0% vs +5.4% in Q1FY20. EBITDA (ex-energy) fell 1.4% QoQ to Rs18bn. EBITDA margin shrunk 64bps YoY to 50.4%, but expanded 355bps QoQ on lower other expenses as there were one-off provisions in the base quarter. Depreciation dipped 7.8% QoQ to Rs7bn on one-offs in base. Net profit came in at Rs7bn (down 21% QoQ). Capex was at Rs1.9bn (5.5% of revenues).

- Dividend of Rs2.3/sh: BHIN received dividend of Rs4.2bn from Indus Towers after a gap of two years probably on change in DDT regime. BHIN has used this cash to declare dividend of Rs2.3/sh for its shareholders.

Shares of BHARTI INFRATEL LTD. was last trading in BSE at Rs.191.2 as compared to the previous close of Rs. 194.55. The total number of shares traded during the day was 444568 in over 5665 trades.

The stock hit an intraday high of Rs. 194.9 and intraday low of 187.85. The net turnover during the day was Rs. 84608786.