Bharti Infratel hits 2-month high; stocks zooms 79% from March low

Analysts expect tenancy cancellations to taper down over the next two quarters and a much-improved gross tenancy addition to start reflecting in net tenancy additions

Shares of Bharti Infratel continued their northward journey and rose 5 per cent on the BSE on Tuesday to hit a two-month high of Rs 217.50 on expectation that the company’s margins would revert to 50–52 per cent from the current quarter (Q1FY21).

The stock was trading at its highest level since March 16, 2020. It has zoomed 79 per cent in the past two months from Rs 121 on March 19, as compared to 7.8 per cent rise in the S&P BSE Sensex.

Bharti Infratel is a provider of tower and related infrastructure, and deploys, owns and manages telecom towers and communication structures for various mobile operators. The company’s consolidated portfolio consists of over 90,000 telecom towers.

Bharti Infratel, in which Bharti Airtel has 53.5 per cent stake, owns and operates over 40,000 towers. It holds 42 per cent in Indus Towers, which is a tri-partite joint venture (JV) between Bharti Infratel, Vodafone, and Vodafone Idea in the ratio 42:42:11.

In the January-March quarter (Q4FY20), Bharti Infratel reported weak results with Rs 193 crore worth of provisions against bad debt pulling down EBITDA (earnings before interest, taxes, depreciation and amortization) margin by 420bps sequentially.

Consolidated revenues came in at Rs 3,624 crore, up 0.7 per cent on quarter on quarter (QoQ). The core rental revenues came in at Rs 2,251 crore, down 1.4% QoQ.

Although gross tenancy addition stood out at a ten-quarter high, the spurt in tenancy cancellations led to a meagre QoQ net addition of 431. Analysts at Edelweiss Securities expect tenancy cancellations to taper down over the next two quarters and a much-improved gross tenancy addition to start reflecting in net tenancy additions accordingly.

The brokerage firm believes that the sharp correction in the stock price is a reflection of the  market’s expectation of further consolidation in the telecom operator space, which is leading to tenancy cancellations. "That said, we believe the government has already indicated its willingness to collect AGR (Adjusted Gross Revenue) dues over a 20-year period and hence we believe there is a good chance of the current industry structure sustaining," it said. The brokerage firm has a ‘buy’ rating on the stock with 12-month target price of Rs 235 per share.

Prior to the current rally in its stock price, Bharti Infratel had underperformed the market and fell 51 per cent during the calendar year 2020, till March 19.

The Covid-19 illness has highlighted the need for a strong telecom industry in India, and we take some encouragement from Vodafone paying $200 million to Vodafone Idea that had been committed in better times. We believe that while Infratel is exposed to serious customer risk, it can survive it, and the stock price is largely factoring in a worst-case scenario, analysts at Deutsche Bank said in results update. The brokerage firm has ‘buy’ rating on the stock with 12-month target price of Rs 250 per share.