According to ICICI Securities, Bharti Airtel and Vodafone Plc may reduce stake in the merged tower entity of Bharti Infratel and Indus Tower through a structured deal such as forming Infrastructure Investment Trust (InvIT) or bringing in a strategic investor.
ICICI Securities expects that a reduction in stake by both the parties would make the merged entity more independent, which may drive rerating in the valuations with reduction in conflict of interest.
Further, it added that no promoter will be holding majority stake in the merged entity under the new shareholding structure. Airtel will be the largest shareholder with 36.7 per cent stake followed by Vodafone Plc at 28.2 per cent while Providence PE will have 3.3 per cent.
As per the agreement, Vodafone Idea Limited will receive Rs 40 billion in cash towards its 11.15 percent stake in Indus Towers and the merged entity would make dividend payout of Rs 48 billion within three months of merger. In this regard, ICICI Securities said that this cash payout would mean the merged entity would turn into a net-debt company from net-cash. However, net debt to equity will be 30 per centand net debt to cash earnings before interest, taxes, depreciation, and amortisation (EBITDA), financial year (FY22E) is at 0.8x, which is much lower than the targeted 2x net debt to EBITDA.
The brokerage said that Bharti Infratel may benefit from opportunities such as denser network, small cell and fibre. According to the firm, these businesses will have much better prospectus in the 5G era. However, ICICI does not expect 5G rollout in India before FY23, although, it said that in the long run these opportunities can surely be monetised by tower companies.
As per the report, 5G rollout will come with much higher revenue opportunities for towercos in terms of both higher space occupied in existing towers and higher network rollout due to use of much lower spectrum bands.
The brokerage said that fibre is a really big opportunity for the merged entity given that their anchor tenants Bharti Airtel and Vodafone Idea are under-fiberised. Further, it added that Bharti Infratel and Indus Towers have been rolling out fibre in smart cities, which should have allowed them to perfect the business model.