Bharti Infratel's profit after tax down 24% to Rs 733 crore in Sept quarter

 

Telecom tower company Bharti Infratel on Thursday announced a 24 per cent decline in its profit after tax at Rs 733 crore for the quarter ended September 30. The company had reported a profit after tax of Rs 964 crore in the same period last year.

The consolidated revenue for the quarter was Rs 3,695 crore, up by 2 per cent from Rs 3,638 crore in the year-ago period.

The company completed the merger of Indus Towers with itself during this (July-September) quarter.

Bharti Infratel extends deadline for merger with Indus Towers by 2 months

Bharti Infratel on Monday extended the deadline for its merger with Indus Towers by two more months to April 24, but cautioned that final call on scheme implementation will be taken by the board based on assessment of telecom crisis and its impact.

"The final decision to implement the scheme will be taken by the board keeping in mind the best interest of the company and its stakeholders including the assessment of the current crisis facing the telecom industry and the extent of its impact on the company's major customers," Bharti Infratel said in a regulatory filing.

It said that although the foreign direct investment (FDI) approval for the merger with Indus Towers had been received, the long stop date (deadline) has been extended as other actions and conditions precedent to be fulfilled for the scheme to become effective cannot be completed by the previously stated deadline of February 24.

"...The board of directors has further extended long stop date till April 24, 2020, subject to agreement on closing adjustment and other conditions precedent for closing, with each party retaining the right to terminate and withdraw the scheme," it said.

Bharti Infratel, Indus Towers extend deadline for merger to February

Bharti Infratel on Tuesday said it has extended the deadline for merger with mobile tower company Indus Towers by two more months to February 24, as it has not received the necessary government approvals so far.

"The Board of Directors has further extended the long stop date till February 24, 2020, subject to agreement on closing adjustments and other conditions precedent for closing, with each party retaining the right to terminate and withdraw the scheme," Bharti Infratel said in a BSE filing.

It also cautioned that "there can be no assurance that the merger can be completed within the extended time-frame" and added that the completion of merger is contingent upon receipt of requisite regulatory approvals and fulfilment of other conditions precedent.

"Further to our letter dated October 24, 2019, we wish to inform you that the requisite government approvals have not been received till date, and consequently, conditions precedent could not be completed within the extended timeline i.e. December 24, 2019," the company pointed out.

In October this year, Bharti Infratel had extended the deadline for merger by two months to December 24 as regulatory uncertainty loomed over the deal.

As on September 30, 2019, Bharti Infratel and Vodafone India hold 42 per cent stake each in Indus. Vodafone Idea holds 11.15 per cent stake in the mobile tower firm.

The merger of Indus Towers and Bharti Infratel announced in April last year aimed at creating the largest mobile tower operator in the world outside China with over 163,000 towers across 22 telecom service areas.

As per the plans, the combined company, which would fully own the respective businesses of Bharti Infratel and Indus Towers, would change its name to Indus Towers Ltd and will continue to be listed on Indian Stock Exchanges.

The company had also said the move would provide exit opportunity to shareholder operators of Indus. The timely completion of the tower deal was critical for the companies, particularly since it would allow Bharti and Vodafone Idea in offloading stake and raising funds.

Bharti Airtel and Vodafone Idea had reported a whopping combined loss of nearly Rs 74,000 crore in the September quarter after being hit by statutory liabilities arising from a Supreme Court ruling.

These dues arose after the Supreme Court in October this year upheld the government's position on including revenue from non-telecommunication businesses in calculating the annual adjusted gross revenue (AGR) of telecom companies, a share of which is paid as licence and spectrum fees to the exchequer.

Airtel posted a staggering Rs 23,045 crore net loss for the second quarter ended September 30, due to provisioning of Rs 28,450 crore in the aftermath of the SC ruling on statutory dues.

Vodafone Idea recorded losses of Rs 50,921 crore, marking the highest-ever quarterly loss by any corporate in India.

According to government data, statutory liabilities in the case of Bharti Airtel adds up to nearly Rs 35,586 crore, of which Rs 21,682 crore is licence fee and another Rs 13,904.01 crore is the SUC (spectrum usage charges) dues (excluding the dues of Telenor and Tata Teleservices).

In the case of Vodafone Idea, this number stands at a cumulative Rs 53,038 crore, including Rs 24,729 crore of SUC dues and Rs 28,309 crore in licence fee.

The Supreme Court had allowed three months to the affected telcos to cough up the amounts due to the government, and the telecom department subsequently shot off notices to players to pay their revenue share dues within the timelines stipulated by the apex court.

Both Airtel and Vodafone Idea have petitioned the government for relief in waiver of interest and penalty, which will halve the dues, and also filed a review petition in the Supreme Court.

Vodafone Idea chairman Kumar Mangalam Birla has already warned that the mobile service provider will shut down if the government does not provide relief on the liability it faces in past statutory dues following the Supreme Court order.

Tenancy gains key worry for Bharti Infratel to maintain revenue momentum

After hitting a 52-week low following the Supreme Court's order on adjusted gross revenues (AGR) last month, the stock of Bharti Infratel has bounced back by gaining over 30 per cent. The overhang related to its two key anchor tenants, Bharti Airtel and Vodafone Idea, continues but the street believes that the worst is already factored into the stock.

Given that Bharti Infratel's revenues are dependent on the number of tenants it has, the confidence of its customers is important for maintaining its revenue momentum. The recent decision of the two anchor tenants to raise prices from December 1, is a positive for the tower operator. Analysts believe that if Vodafone Idea and Bharti Airtel increase their tariffs by 15 per cent, Bharti Airtel's operating profit could increase by 25 per cent. Both operators had cut their costs both on the opex and capex fronts in FY20; the tariff increases offers them room to strengthen their network.

While these are positives, there are some headwinds as well. The merger of Idea and Vodafone had led to synergy gains and thus exits from its network impacting its revenues. While lower tenancies from Vodafone Idea was expected, the ability of the company to survive came into question after the adverse AGR verdict. This would be huge blow for Bharti Infratel if the company were to shut down even in a scenario of price hikes. However, analysts increasingly this may not happen.

Analysts at IIFL believe with Rs 90,000 crore of spectrum dues for the government from Vodafone Idea at stake, the government has incentives to ensure the company's financial viability. They believe that the government spreading the penalty on licence fee on the AGR case over 5-7 years, enabling conditions for a price hike and not pursuing the spectrum penalty could help VIL survive with a lower market share. The current stock price factors in a Bharti-only scenario, according to a note IIFL released last month.

The other worry is on the operational front where pace of tenancy additions or ramp up even for Bharti Airtel has been low. In addition to Bharti Airtel, incremental tenancy gains from Jio appear unlikely given the fact that the operator has reached almost 99 per cent network coverage and has floated an investment trust comprising its own tower assets, say analysts at SBICAP Research. With Bharti Airtel the only telco operator that is likely to provide any incremental tenancies, the likelihood of growth in tenancies for Bharti Infratel is muted, they add.

While price hikes are positive, investors should not jump into the stock as it is not clear how Reliance Jio will react. Moreover, there is little clarity on the participation by companies in the 5G spectrum auction. Adoption of 5G is slated to be the next big trigger for Bharti Infratel.

Bharti Infra defers Indus Towers merger to Dec 24 amid delay in govt nod

Telecom infrastructure firm Bharti Infratel on Friday said it has extended deadline for merger of mobile tower company Indus Towers by two months to December 24 while considering regulatory uncertainty looming over the deal.

The delay in deal will also result in lower payment to Vodafone Idea for its around 11.15 per cent stake, according to a regulatory filing by Bharti Infratel to stock exchanges. It was expected that Vodafone Idea will get around Rs 5,500 crore from stake sale in Indus Towers.

"The Board of Directors, in its meeting held on October 24, 2019, has accepted the CoD's recommendations to extend the long stop date by 60 days i.e. till December 24, 2019, on the basis of agreements on closing adjustments and other conditions precedent for closing," Bharti Infratel said.

The company said based on the net debt as on September 30, 2019 and such agreed closing adjustments, it is expected that the dilution of equity stake held by the current shareholders of Bharti Infratel shall be lower on account of lesser number of shares to be issued against swap of Indus shares vis-a-vis the illustrative shareholdings disclosed in the original transaction announcement.

" These would also result in lower cash payments to Vodafone Idea Limited vis-a-vis the illustrative amounts disclosed earlier. Since the completion of merger is contingent upon receipt of requisite regulatory approvals and fulfilment of other conditions precedent, there can be no assurance that the merger can be completed within the extended time-frame, " the filing said.

In April 2018, Bharti Airtel, Idea Cellular and Vodafone Group had announced an agreement for the merger of Indus Towers and Bharti Infratel to create the largest mobile tower operator in the world outside China. It will have over 163,000 towers across 22 telecom service areas in India.

As per the original deal structure, Vodafone was to be issued 783.1 million new shares in the merged entity in exchange for its 42 per cent stake in Indus Towers, and this could take its holding to 29.4 per cent in new company depending on the options finally taken by Idea and Providence.

Similarly, Airtel's stake in the new combined tower behemoth was to diluted to 37.2 per cent in the combined entity from 53.5 per cent it currently holds in Bharti Infratel. The transaction at the time of deal announcement valued Indus Towers at an enterprise value of Rs 71,500 crore.