Bharti Infratel's Ebitda and free cash flows will register a 10-15% CAGR thanks to data network rollouts sparked by Reliance Jio, say analysts
New Delhi: Bharti Airtel Ltd may be locked in a bloody war with Reliance Jio Infocomm Ltd, but its telecom tower subsidiary stands to gain from the aggressive network rollout by the Mukesh Ambani-controlled company, two brokerage reports said.
Unit Bharti Infratel Ltd offers tower and infrastructure services for telcos and also holds 42% in Indus Towers Ltd. Bharti Airtel holds 72% in Bharti Infratel.
The tower company’s Ebitda and free cash flows will register a 10-15% compounded annual growth rate thanks to data network rollouts, brokerage firm CLSA India Pvt. Ltd said, while JP Morgan Chase and Co. said the outlook for 2017-18 tenancy additions is brighter as Reliance Jio accelerates network expansion.
Brokerage firm CLSA said in a note on Monday, “We expect Infratel’s Ebitda and free cash flows to register a 10-15% CAGR, with data networks being ramped up by Reliance Jio and Infratel’s anchor tenants. While a decision on strategic stake sale by Bharti Airtel is awaited and there is also risk from a potential merger of Vodafone and Idea Cellular, we maintain that Bharti Infratel will be the key beneficiary of ongoing data network rollouts."
Analysts at JP Morgan expect Reliance Jio to build out incrementally with Bharti Infratel and Indus Towers, since in the first phase, the build-out of networks by Reliance Jio happened largely with Reliance Communications Ltd and its own towers.
“Bharti Infratel’s 3QFY2017 print was healthy, with all time high tenancy additions at 6139. We think the outlook for FY 2018 tenancy adds is looking up as Reliance Jio also comes on board to a greater extent than before," JP Morgan said in a note on Tuesday.
On Monday, Bharti Infratel announced its results for quarter ended 31 December, posting a 25% yearly growth in consolidated net profit to Rs620 crore. The company claimed highest tenancy or co-additions in five years at 6139 in the quarter .
However, the management at Bharti Infratel said Reliance Jio’s free offerings are short-lived and will squeeze smaller operators. However, more data networks are being rolled out and the management believes top operators have the strength to do so.
“The tenancy additions have been majorly from the top three telcos and Reliance Jio. Earlier, there were spectrum auctions as well and so deployment of networks, and we see large 4G network roll out by top operators. The top three are rolling out extensively and we see Reliance Jio becoming material in our new additions. We are not seeing significant additions from small operators," Akhil Gupta, chairman, Bharti Infratel said in the earnings call on Tuesday.
On 25 October, Bharti Airtel informed the stock exchanges about its board authorizing a committee of directors for evaluating the sale of stake in Bharti Infratel.