Industry Overview :
Telecommunication services are known as one of the key driving forces for the socio-economic development of a nation. Mobile telephony has seen a staggering growth in the past 10 years. However, it has been witnessing a slowdown in recent years. Driven by data explosion and rollout of data services (3G and 4G) along with operational prudence, the Indian telecom market is expected to be back on the growth track.
With increasing market competitiveness, the current focus of the telecom operators in India has moved from increasing the subscriber base to improving the ‘active’ user base. Moreover, telecom operators are laying emphasis on operational prudence more than ever.
There are three key aspects which would continue to fuel growth of tower companies:
- Strong focus on operational excellence
- Data explosion
- Potential in rural areas to add subscribers to the ‘active’ user bas
Data Usage Landscape in India
India has come a long way from 2001 when there were only about 7 million Internet users to become the second largest market in the world for Facebook and LinkedIn and the third country in the world to have over five internet companies valued at over $1 billion. India added 43 million internet users (20.5% CAGR) from October 2013 to September 2014 resulting in total internet users crossing 254 million in September 2014. Out of these, 235 million users accessed internet through mobile devices. The growth in internet users was seen both in rural and urban parts of India.
The current smartphone penetration in India stands at 13.4% up from 10% in 2014. As per the study conducted by Deloitte across 25 countries, once the smartphone penetration exceeds 25%, data explosion takes a new dimension. This is mostly driven by the data hungry applications and on-demand services. India is likely to follow the global trend and will see tremendous data growth at 30% smartphone penetration with even more adoption of data hungry applications / services on mobile devices.
As telecom operators are focusing on increasing market penetration with limited capital expenditure, it is favorable for telecom operators to lease towers from tower companies, reducing costs considerably and allowing telecom operators to focus on core marketing activities. Leasing towers from tower companies also enables new telecom operators to rollout services in record times.
There are close to 400,000 telecom towers in India at present and are estimated to increase at CAGR of 3% over next 4-5 years. The decline in growth of voice usage along with industry developments and regulations in India have raised concerns about the growth of independent tower businesses, thereby affecting their cash flows and debt repayments. However, exploding data traffic is leading to in-building solutions and smaller cell sites, and is expected to drive growth of the Indian tower industry in the future.
As early movers, Indian tower companies have become global industry leaders with a large number of towers under management.
CRISIL Research expects tower additions to remain low over the next five years as there are adequate towers at present. Emphasis would shift to improving tenancies (which are below optimum levels) on existing towers in the medium term. BTS additions are expected to be strong, particularly with operators launching and/or expanding their 3G and 4G service offerings.
Cmpny Overview : Part of Bharti Group, the company is in business of acquire, set-up, build and Operating telecommunications tower and related Infrastructure. The company was incorporated in 2006. It it is one of the largest Telecom Infrastructure company all over the world. As the India is going through the telecommunications revolution, demand for towers is increasing. Bharti Infratel is with the joint venture, Indus Towers world’s largest tower company providing it to all over the Industry.
The company has over 38,642 standalone towers across 18 states, and 11 telecom circles in India. On a consolidated basis, Bharti Infratel is one of the largest tower infrastructure providers in India, based on the number of towers that the company owns and operates and the number of towers owned or operated by Indus Towers Limited – a Joint Venture between Bharti Infratel, Vodafone India and Aditya Birla Telecom, represented by Bharti Infratel’s 42% equity interest in Indus.
Financials and Ratios
2011-12 2012-13 2013-14 2014-15 2015-16
Revenue 9452.10 10272 10826.70 11668.30 12308.40
Net Profit 749.10 1002.50 1517.90 1992.40 2382
Net Profit Margin 10.89 22.64 21.80 50.57 23.65
EPS 2.57 5.65 5.76 14.40 6.98
Book Value 253.69 93.57 93.94 94.85 97.92
Dividend per Share 0 5.5 4.40 11 3
Dividend Payout 0 99.24 76.27 76.39 43.13
ROE 3.04 5.72 6.14 15.17 7.12
ROCE 2.82 5.34 5.46 14.07 6.60
ROA 2.49 4.61 4.87 12.26 5.97
Asset Turnover 23.12 20.37 22.35 24.25 25.26
Debt to Equity 0 0 0 0 0
Future Prospects : As the penetration of smartphone in India is increasing, the demand for data is also increasing. Being leader in the segment, Bharti Infratel enjoy some plus as there is always demand from customers. Play there is always business from one customer. That is Bharti Airtel. Even though there is big challenge from Reliance Jio, Infratel is big plus for the company.
India is at the cusp of data revolution and the demand is expected to grow with exhaustion of data capacity. Even if CRISIL report indicating less need for tower, but the entry of big player like Brookfield and other indicate that there is Growth in the sector. Bharti Infratel is placed better then any other company. Sale figures of 4G smartphone indicated that we may need to develop it very soon. As digital India initiative is developing, new customer segment like Govt are expected to emerge.
Entry of Jio may start consolidation in operators, in that time a company holding big chunk of market is big plus.
Infratel is giving us one opportunity. Offshore market this business is run by Private Equity firms of REIT forms. In India it is developed by one of India’s largest Telecom company. Generally the segment is less risky and make constant flow of Cash. That is why many people call them modern innovative asset in REIT.
The company is Professionally managed and increasing Dividend. It is good chance to invest in it.
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