Pace of data roll-out key trigger for Bharti Infratel

Muted June quarter on account of lower tenancy additions

The stock of Bharti Infratel continues to add to earlier gains, on account of brokerage upgrades, on expectations of re-rating due to attractive valuations and an upside from data pick-up.

The stock has gained 17 per cent in a month, with 11 per cent coming in the past few trading sessions. The key worry for the Street was the pricing anomaly between anchor and new tenants, and any downward trend in rental renewals, due to higher discounts to telecommunication companies (telcos) when contracts come for renewal in FY19.

However, the company has implemented a new rate card system, effective April 1. This removes the uncertainty of significant downward revision of rentals in coming renewals. The other worry continues to be tenancy growth. Tenancy addition in April-June was the lowest in 13 quarters, on account of the exit of Videocon in some circles.

There could also be short-term concerns, such as mergers and acquisitions of Aircel, Sistema and Reliance Communications. The coming spectrum auctions could also delay investments for the next two to three quarters.

Analysts at Motilal Oswal Securities say after two or three quarters, data-led investments should resume, which, combined with the Reliance Jio-led capacity ramp-up, should improve co-location growth. A sharp rise in capital expenditure should lead to higher loading on existing sites, as well as demand for new ones. Further, analysts at PhillipCapital say the company will benefit from accelerated data roll-outs and new revenue opportunities, such as in-building solutions and small cells.

Analysts say telcos such as Vodafone are yet to fully expand their services (3G, 4G), as they have been late entrants. This, coupled with a need for new towers to accommodate voice services, will force telcos to expand coverage, improving tenancies for tower companies. Tenancies remain the biggest trigger for the latter.

Analysts at Morgan Stanley believe Bharti Infratel, only listed tower entity in India, is best positioned to play the data story, with the top three operators accounting for 85 per cent of its tenancies. What makes the stock attractive are the consistently high-dividend payouts and improving revenue visibility, which PhillipCapital analysts say will translate into a re-rating and a valuation catch-up with global peers. The stock trades at 25 times its FY18 earnings per share estimates.