Bharti Infratel limited (Bharti Infratel) is tower and related infrastructure providing
company of Bharti group. It is one of the largest tower infrastructure providers in
terms of number of towers own and operated by a company having pan India
presence on a consolidated basis. Bharti Infratel has registered a 3.4% and 9.6% CAGR in
towers and tenancies, respectively over the last three years. The company posted
15.9% and 21.0% revenue and EBITDA CAGR over FY2010-12. In terms of
valuation, the current IPO price band of `210-240 implies a June 2012
annualized EV/EBITDA of 11-13x, EV/tower of `0.5-0.56cr; P/E of 45-53x, and
P/BV of 2.7-3.0x, which we believe is at a premium. In addition, low asset
turnover and minimal use of leverage in a capital intensive industry have resulted
in low RoE for Bharti Infratel over the past three years. Bharti Infratel’s RoE has
remained in the range of 4.0-5.2 in the past couple of years. Also, the
overcapacity in the industry is expected to limit the demand for rollout of new
towers. Further, regulatory changes and the resultant uncertainty pose a risk to
telecom players as their network rollout plans could be hampered. Hence, we
recommend Avoid to the issue on account of its premium valuations.
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