Bharti Infratel awaits data business growth

Impact of data investments by telcos to reflect on company's rental, tenancy in a few quarters

The accelerated deployment of 4G (fourth generation) technology by leading telecom operators and announcements of a rise in capital expenditure should help Bharti Infratel improve operational metrics. As telcos focus on building quality data network to stay ahead, it should lead to increased network coverage by telcos, positive for India’s largest telecom tower company.

Telcos are seeing high double-digit growth in revenues, with usage up 70 per cent year-on-year. Analysts at JPMorgan say due to non-scalability of data networks and inferior 3G/4G spectrum, loading (enhancing tenancy on existing tower) alone is unlikely to provide seamless data network. Further, with RJio (Reliance Jio Infocomm) set to launch services, incumbents have been forced to accelerate rollout of data tenancies. While Idea Cellular has revised its FY16 forecast upwards for the third time in past 10 months to increase the pace of 4G rollout, Bharti Airtel plans to invest up to Rs 60,000 crore over three years to upgrade its network.

For Infratel, rental revenue growth will come from tenancy improvement and tower additions. While tenancy additions in the December quarter were lower than expected, tower additions at 871 continue to be strong, the highest in 13 quarters. Analysts say Infratel needs to register healthy and consistent growth in rental revenues to get and sustain higher valuation multiples. For this, upsides from data need to play out faster.

The December quarter did not reflect the increased intensity of rollouts, with tenancy ratio flat sequentially (consolidated tenancies including of Indus Towers were higher), as operators were focused on loading their transmitters on existing towers. Analysts say this will show up in the coming quarters, as stand-alone 3G/4G data sites drive improvement in tenancies, leading to incremental revenues from current sites. While data installations, according to Infratel, have tripled over one year, it is the acceleration of rollout which should reflect positively.

Given the December quarter results, though most brokerages have a ‘buy’, they have lowered earnings estimates and target price. Bank of America-Merrill Lynch analysts believe margin improvement will be gradual (than earlier estimated) given higher rental and personnel expenses. This is because the company continues to add towers, which will put pressure on rentals. They have a target of Rs 470 (earlier Rs 480) and believe the company will be a key beneficiary of the data boom in coming months.