BackWhy Bharti Infratel’s better-than-expected Q3 results failed to impress
Average revenue per operator increased 7.3% on a sequential basis, reflecting increased usage by customersProfit was aided by the ₹55 crore penalty amount the firm received towards contract terminations
PremiumAppearances can be deceptive. At first glance, Bharti Infratel Ltd’s results for the December quarter look better than expectations. Reported revenue fell just 0.8% on a sequential basis despite a notable reduction in customer tenancies.
But as soon as it became clear that much of the earnings beat was driven by non-recurring revenues, the Bharti Infratel stock fell by 5%.
Profit was aided by the ₹55 crore penalty amount the firm received towards contract terminations. An additional ₹40 crore was said to have been booked from customers who are in the process of terminating their contracts. Accounting for these non-recurring revenue, the earnings beat is not substantial, say analysts.
Note that post-merger, Vodafone Idea Ltd has been rationalizing its tower network to remove duplication, and these exits are resulting in penalty payments to Bharti Infratel.
That said, telcos’ focus on 4G networks is aiding Bharti Infratel. This is not only helping the firm add fresh customers at its tower sites but is also improving its realizations.
Average revenue per operator increased 7.3% on a sequential basis, reflecting increased usage by customers. But tenancy additions have been poor owing to the exits mentioned above. Net tenancy addition stood at a poor 654 in the December quarter, with exits being as high as 4,000.
According to analysts at JM Financial Ltd, the newly merged group is not only shutting down sites in the same location but also ones with low utilization levels. So even as Bharti Infratel continues to see incremental benefits from investments in 4G networks, exits can constrain growth for some quarters.
“Bharti Infratel has a growth problem—we expect underlying sharing revenues and EBITDA to remain under pressure over the next few quarters, in view of Vodafone Idea’s indicated shutdown of additional 22,000 network sites (likely from October 2018 through March 2020)," add analysts at JM Financial. Ebitda stands for earnings before interest, tax, depreciation and amortization.
Some analysts are also concerned that Reliance Jio Infocomm Ltd’s plans to monetize its stake in its tower assets could have adverse ramifications for Bharti Infratel’s valuations. “Jio’s tower assets add to supply of tower assets available in the market for monetization and may have some adverse impact on Bharti Infratel’s valuations going forward," analysts at SBICAP Securities Ltd said in a note.
In this backdrop, it’s hardly surprising that the stock has lost nearly a fourth of its value in the past year.
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