Bharti Infratel Ltd’s June quarter results has impressed investors. The stock was the biggest gainer among Nifty stocks in early deals on Thursday.
Consolidated revenue grew for the first time in a year, rising 1%. Lower fuel, other expenses and changes in accounting norms means operating profit jumped 28% from a year ago boosting return ratios. “Rental EBITDA grew strongly by 6% on account of better rental revenues and a 60 basis points margin improvement," Motilal Oswal Financial Services Ltd said in a note. “Average rental yield increased by a strong 3% QoQ (quarter-on-quarter), attributed to loading and higher rate reset at sites that have seen terminations."
More importantly, key parameters show signs of stabilising. Revenue per tower per month and revenue per customer per month saw notable rise from March quarter. Even the closing sharing factor which indicates tenancy, and has been on a steady decline, stabilised in the June quarter. “We are pleased to note that after negative trend in net co-locations for the last six consecutive quarters due to consolidation in the telecom industry, we had net additions in co-locations this quarter," Akhil Gupta, chairman, Bharti Infratel said in a statement.
However, it is not clear yet how much revenue Bharti Infratel derived as exit penalties from customers who discontinued services. Companies such as Vodafone Idea Ltd have been getting rid of duplicate tower infrastructure focusing on high paying cell sites.
A significant portion of the improvement in operating metrics is driven by Indus Towers, in which Bharti Infratel holds 42% stake. Total co-locations at the company increased 0.8% sequentially, improving the closing factor. Comparatively, co-locations at Bharti Infratel standalone level continued to decline – it was 0.3% from the March quarter.
Even so revenue per tower per month and revenue per customer per month increased at both the entities. “Bharti Infratel’s core operating performance was better on account of better-than-expected rental income, while margins were better than our expectations on lower repairs and maintenance expenses," ICICI Direct Research said in a note to its clients.
If the current trends hold ground, one may see a steady recovery in financial performance, partly aided by a favourable base. Last financial year, Bharti Infratel’s operating profit dropped 5.5% as it lost customers. As the company recalibrates its costs aligning its network to new technology (4G), earnings are projected to recover. “EBITDA may have bottomed out in Q1, even as we expect some pick-up in tenancy exits by Vodafone-Idea over the coming 1-2 quarters. We see room for EBITDA upgrades," analysts at JM Financial Institutional Equities Ltd said in a note to their clients. Ebitda is earnings before interest tax depreciation and amortization.