Accelerated data network expansion by Bharti and RJio should keep gross tenancy additions healthy. Net additions might be moderated by the potential loss of tenancies from Aircel and TTSL. As cell density grows in urban areas, growth over the next two years would be contract driven.
The Vodafone-Idea merger could have a negative impact of 15% on EBITDA, given a potential 35k -37k site reduction. 11%-9% revenue growth is expected in FY18-19 on the back of healthy 10% tenancy addition from Bharti and RJio in F Y18. Assuming a 15% EBITDA cut due to Vodafone-Idea merger, the stock would be valued at 10.3x (FY19E).
BHIN’s key value proposition is its high free cash generating capability, with 6-7% FCFE yield. Bharti Infratel (BHIN) has witnessed healthy tenancy addition over the last 2-3 quarters, led by aggressive 4G rollout by RJio and Airtel.
In FY18, gross additions should remain high, as RJIo and Airtel are expected to continue accelerated data network expansion. Net additions would depend on the balance 15% tenancies, with TTSL and Aircel tenancies at risk. Renewal of master service agreements is completed by 75% tenants. Rentals are frozen for most tenants for the first three years; so, price increases are likely to be negligible.
However, we understand that single RAN adoption does not impact loading revenues, as charges are technology-wise and are also incurred separately for incremental antenna space.