Bharti Infratel: Strong performance despite slow operator roll-outs

Company Stories , October 15, 2013

Established in 2006, Bharti Infratel Limited is a leading player in the telecom infrastructure industry with a portfolio of 82,321 towers and a tenancy ratio of 1.91 (including its share in Indus Towers).

The company reported a 67.6 per cent growth in its net profit from Rs 2.13 billion in the quarter ended June 30, 2012 to Rs 3.57 billion in the corresponding quarter in 2013. The tower company’s total income grew from Rs 24.16 billion to Rs 26.22 billion during this period.

This is strong sailing for the company as infrastructure providers have been facing financial hurdles with a reduction in infrastructure capex by operators. “We have a strong business model of annuity and growth. When operators do well, telecom infrastructure providers also

witness growth. We witnessed this in 2012, which led to the company generating free cash flows. Currently, Bharti Infratel has a strong balance sheet and robust cash flow. Being a zero-debt company, it is in a strong position to explore inorganic growth opportunities as well,” says Devender Singh Rawat, chief executive officer, Bharti Infratel.

Earlier this year, the company announced the merger of Bharti Infratel Ventures Limited (BIVL), Bharti Infratel’s wholly owned subsidiary, with Indus Towers. With its 42 per cent interest in Indus Towers, Bharti Infratel continues to have a pan-Indian presence. Indus Towers has the right of first refusal from the top three telecom operators (by revenue). Therefore, Bharti Infratel is well positioned to capitalise on future growth opportunities.

In December 2012, Bharti Infratel launched an initial public offering and raised Rs 41.73 billion including Rs 9.34 billion from the offer for sale by some of the company’s private equity investors. It plans to use the proceeds to install over 4,800 towers across seven circles by 2016. It would set up these towers at an investment of Rs 10.86 billion. In addition, the company is planning to invest Rs 12.14 billion in upgrading and replacing its existing towers and another Rs 6.39 billion in green projects.

According to Rawat, the business environment for operators will continue to improve in terms of operational and financial performance. This, along with greater regulatory clarity, is expected to help the tower industry grow in the next few years. As Rawat points out, the low telecom penetration in rural areas provides operators and infrastructure providers a huge untapped business opportunity. “The industry is expecting an exponential increase in data usage with 100 per cent year-on-year growth. Operators will continue to roll out towers for offering data and enhanced voice services. We are prepared to leverage this opportunity and are also evaluating inorganic growth options,” he says.

Rawat believes that it is important for the government to provide clarity on important issues such as licence renewal and spectrum refarming. Meanwhile, the government and industry players are discussing concerns regarding unified licensing, spectrum pricing, auction of licences and the implementation of electromagnetic radiation norms. Addressing these issues is expected to have a far-reaching impact on the industry. A fair, transparent and sustainable telecom regime with a strong regulatory policy will help the stakeholders take informed decisions on long-term investments.

 Energy management

Energy management is a key challenge for the tower industry. With inadequate and unreliable power supply, especially in rural India, the industry has no option but to deploy diesel-based solutions to power tower sites. In addition, telecom infrastructure providers are required to meet unrealistic green power targets. Tower companies have to increasingly focus on addressing their energy needs even though energy management is not their core business.

Bharti Infratel has taken steps to contribute to a cleaner and greener environment. The company has institutionalised the GreenTowers P7 programme, which is aimed at minimising the dependence on diesel consumption and reducing its carbon footprint. The programme is based on seven innovative ideas for deploying clean energy technologies. It has helped Bharti Infratel reduce carbon dioxide emissions by 49,000 million tonnes per annum. The company’s solar-powered network, with an installed capacity of 6 MW covering over 1,200 towers, helps save over 21,000 million tonnes of carbon dioxide emissions annually. Major initiatives are under way to increase the use of solar power solutions across the network to reduce the company’s carbon footprint. Bharti Infratel is also encouraging energy companies to adopt the renewable energy service company (resco) model using distributed generation based on clean and renewable energy sources. However, the industry needs incentives such as tax relief on alternative energy equipment and subsidy to support these green initiatives.

Apart from availability of power, there are challenges in obtaining regulatory approvals from multiple state authorities for setting up new towers and day-to-day operations. The Department of Telecommunications has recently announced a uniform tower policy which should help in providing a single-window clearance mechanism for the industry. Lastly, with the inclusion of telecom tower infrastructure services in the infrastructure subsector list, players are looking forward to some of the benefits that have been offered to other infrastructure sectors.

 Future trends

Rawat is optimistic about growth in the telecom industry. After about two years, the industry has some clarity on the future course of action in select markets. Service providers, which had bid and won licences, are rolling out services with an eye on returns on investments. Further, the roll-out of 3G and 4G networks will require a large base of telecom towers, which will contribute to growth in the segment.


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