Gtl Infrastructure Limited

GTL Infrastructure Limited GTL Infrastructure (GTL infra), established in 2004 and part of Global group, is the pioneer in Shared Telecom Infrastructure in India. GTL Infrastructure offers ready to use passive infrastructure to wireless telecom operators. The company is in the midst of rolling out a Pan India network of 23,700 towers by 2010/11, and is offering the infrastructure to the leading service providers in India. As on September 2009 the company has 10637 towers.

BUY CMP (25.11.09) Target Upside Potential Horizon

: Rs. 35 : Rs. 45.0 : 30% : 10-12 mths

GTL has already made the financial closure for its 23,700 towers. The company is also bidding for a share of Aircel’s towers. With huge tower infrastructure demand coming from new as well as existing telecom players in the world’s fastest growing telecom market, GTL is all set to benefit from this growth.

Key Investment Arguments Industry

Infrastructure Global

House CMP – 25.11.09 (Rs)

33.9

Mkt. Cap (Rs cr)

3194.4

Face Value (Rs.)

10.0 High

49.7

Low

27.7

52 week (Rs) Book value (Rs)

18.5

P/BV (ttm)

1.8

P/E Ratio (ttm)

0.0

Last Dividend (%)

0.0

Avg. daily volume

230448

Shareholding Pattern Total

Benefits of being a passive Infrastructure network: By outsourcing their infrastructure requirements to GTL infra, operators are able to save on capital expenditure and operational expenditure (Each tower costs approximately 17-20 lacs). Passive infrastructure sharing will also allow operators to defer their tower-related capital expenditure investments into operational expenditure - lease rental payments over an extended period of time. Provide ready infrastructure to new as well as existing operators: Availability of ready infrastructure from GTL Infra enables the operators to reduce their time to reach the target market. By outsourcing their infrastructure requirements to GTL Infra, operators are able to focus on their core activities of providing quality services, brand building and customer relationship. Operating and maintaining the passive infrastructure in the cell sites is a cumbersome task, particularly in rural and semi-urban areas where power supply is intermittent. GTL Infra serves as a single window one-stopshop provider of infrastructure and services to telecom operators by undertaking the full range of responsibilities in (%)

Promoters

52.8

Indian

52.8

Foreign Non Promoters

0.0 47.2

FIIs/FDI

3.4

FI/MF

2.8

Public

41.0

100.0

building and Infrastructure Network of 23,700 towers across all 22 telecom maintaining the sites.circles. The company has already done a financial closure for these towers which are likely to be constructed by FY11. Largest Passive infrastructure Tower Build to Suit: GTL infra builds sites in line with the anchor network in India: operator’s requirements. The site can then be shared with GTL infra has a other operators, resulting in a win-win situation for the anchor vision of setting up operator and the new operators. GTL Infra takes full Pan-India Passive responsibility of sharing the site with the other operators.

Proactive Sites: Proactive approach provides an upfront GTL Infra at a Glance

advantage in terms of early presence at several locations

Shared Passive Telecom Infrastructure Provider

Business Tower Portfolio

Sept 2009 – 10,637 towers

where the operators are expected to expand their network, thus giving an advantage of saving on pre-operational expense, enabling a faster roll-out of services in that area by other operators.

Dec 2011E - 23,700 towers

US$ 835 mn as of Sept 30,

More tower infrastructure required for new entrants:

Asset Base

2009

is important to note that all the new entrants has been

Presence

21 Circles across India All major Indian Telecom

allocated 1,800 MHz spectrum, which will make building a viable business model much more difficult, compared to

Customers

Operators ‘Innovative Infrastructure company of the year’ Award from Essar Steel

900MHz which cover larger area with lesser base station. The new entrants will likely target the big urban markets, where established operators enjoy increasing economies of scale and access to lower-frequency spectrum.

Awards Won

and CNBC TV 18

It

Value unlocking for GTL infra likely with plans of Reliance Infratel and Quippo Telecom IPO GTL could be valued anywhere between 5000-9000cr: The most recent deal in the space between ATC and Transcend valued each tower at a little over Rs 29 lakh. This was relatively low as Transcend operates only 325 wireless communications sites. The Nasdaq-listed American Tower Company (ATC) also acquired Gurgaon’s XCEL Telecom this year, giving it more than 2,500 sites in the country. ATC's acquisitions of XCEL in March this year saw each tower valued

Tower Demand (in 000's) 500 400 300 200 100

0 2013- 2012- 2011- 2010- 200914(E) 13(E) 12(E) 11(E) 10

at Rs 44-47 lakh.

Performance Review 100.0

Independant Tow er Companies GTl Inf ra, 50%

Others, 20%

72.0

80.0 60.0

53.1

57.9

64.1

Q2 FY 09

Q3 FY 09

Q4 FY 09

81.3

40.0 20.0 0.0

A TCXcel, 10%

Revenue (Rs cr) Essar, 20%

Q1 FY 10

Q2 FY 10

EBITDA (Rs cr.)

Tata Teleservices' merger with Quippo Telecom Infrastructure in December 2008 valued each tower at Rs 70-78 lakh. These benchmarks could value the tower portfolio of Aircel (12,000 towers) anywhere from Rs 5,280 crore to Rs 9,360 crore. GTL has market capitalization of ~ Rs 3000 cr. with a portfolio of 10637 towers, revenue of around Rs 220Cr in FY09. Based on the number of towers Reliance Infratel (48K towers) and GTL Infra (10K towers), GTL Infra could be closely valued at Rs5000-9000Cr (which is 50-100% upside from the current valuation of Rs3000Cr. Reliance Infratel: Plans to dilute 10% stake in IPO. Though the amount to be raised is not known, recent reports have

pegged the issue size at Rs 5,000-6,000 crore. Bank of

America Merrill Lynch gave Reliance Infratel a rough enterprise value of $13-14 billion in recent research reports.

Indian Telecom Market Overview Parameter

Current Status

Telecom Subscribers(mn)

494

Wireless Subscribers(mn)

457

Tele density (%)

42.27

No. of Circles

23

Capital and GLG Capital. The deal valued the firm at Rs 28,000 crore back then. IPO by Reliance infratel will unlock the value

Avg Net adds/Month (Mn) Subscriber Growth Rate (FY 08) Average Minutes of Usage per User

15.08

of GTL infrastructure as well.

50.10% Rs. 402 mins/month Rs. 220/month

New Launches: With the launch of many new mobile services companies, there is a sudden upsurge in the foundation of telecom towers. Some of the existing companies are also tapping new circles for their services. The ongoing slowdown has come as an opportunity for passive telecom tower industry. New license holders of mobile services including Telenor, Sistema-Shyam and Swan have based their roll out strategy on

Average Revenue Per User Average No. of Operators/Circle

Reliance Infratel had revenues of Rs 4,934 crore in FY09 with 48,000 towers and 75,000 tenants. In 2007, Reliance Infratel raised Rs 1,400 crore by selling a 5% stake to seven investors - George Soros, HSBC, Fortress Capital, New Silk, Galleon, DA

7

Tenancy by customers RCOM,

Aircel, 15% BSNL, 14%

8%

leasing towers from other companies. Even existing operators Airtel, 8% Tata Tele, 11%

Others , 3% Vodafon e, 16%

Idea , 25%

like Aircel and Idea are leasing passive infrastructure for rolling out network in new circles. A new operator would need about 60,000 towers for pan-India operations, costing Rs 20-30 lakh each requires a capex of close to Rs. 12000-18000cr. New mobile licenses have come as an opportunity for tower companies. GTL Infra has 10,000 towers and plans to add another 6,000 towers in next financial year. By the end of 2011-12, the company plans to have 23,700 towers. It is most likely that new license holders would prefer independent firms like GTL for unbiased services. Moreover the new operator would look forward for such services to reduce the operating cost and to focus on their core operations. GTL in race to acquire Aircel Towers: Tata-Quippo and GTL Infrastructure are the front runners to buy all or part of the tower holdings of Aircel, a unit of Malaysia's Maxis, valued at about $1.3 to $1.5 billion. Due diligence is in the final stages and clarity on the winner is expected very soon. Aircel, India's No.7 mobile operator owns about 12,000 towers and is looking to offload between 51% to 100%.

Key Concerns The main concern for the company is its profitability. The company is still in the losses, although the EBITDA has shown positive growth. Negative PAT growth clearly comes from the fact that the company is in expansion phase and has still not reaped the benefits of telecom infrastructure. However with an aim of being the largest telecom infrastructure company having pan India presence will enable the company to better utilize its resources. The company is also of the opinion that being a passive infrastructure player it would be able to provide unbiased telecom services to its tenants.

Conclusion On the basis of our research, we feel that this is a good stock to buy at the current market price of Rs. 35. If

everything goes well, the price is likely to appreciate to Rs.45.0, within 10-12 months, translating into a gain of about 30%.

Financials

(Rs. in crore) 3 yr CAGR

Q2 200909 Share Capital

949.2

200903 816.2

200803

200703

200603

816.2

734.3

332.8

932.9

318.2

233.6

%

Networth Revenues EBITDA

153.3 108.6

220.8 172.9

124.6 100.4

50.0 42.6

17.0

135.1

7.7

182.6

APAT

-19.2

2.8

-53.5

-25.0

-10.7

0.0

0.0 1.8 0.0

0.0 0.3 0.0

0.0 0.3 0.0

0.0 0.4 0.0

2.7

2.6

1.8

1.3

0.3

0.3

0.9

-16.4

27.3

19.6

16.6

15.3

70.8

78.3

80.6

85.2

45.1

-12.5

1.3

-43.0

-50.0

-62.8

Dividend % CEPS (Rs.) EPS (Rs.)*

1263.6

0.0

Debt-Equity Ratio Interest Coverage Ratio

0.4

RoNW % EBITDA Margin % APAT Margin % Total Asset Turnover Ratio Fixed Asset Turnover Ratio Price/Sales PE Multiple

0.2 0.1

0.1 0.1

0.2 0.1

11.6 0.0

1.8 P/BV Ratio *EPS for Q2FY10 is absolute and not annualized

Quarterly Results

Quarter Ended Sep-09

Change

Sep-08

Y-O-Y

Rs. Cr

Rs. Cr

Net Sales /Income from Operations

81.3

53.1

53%

Infra O&M cost (Net)

25.0

16.5

52%

Employee cost

5.0

4.3

16%

Other Expenditure

7.0

6.5

7%

44.3

25.8

72%

0.5

0.5

Depreciation

51.0

31.9

Interest & Finance charges

39.3

24.6

4.1

-15.6

Other Income

12.3

11.3

Profit/(Loss) before Tax

-37.9

-3.9

Net Profit/(Loss)

-37.9

14.5

Particulars

EBITDA EBITDA Margin

Foreign exchange (Gain)/Loss (Net)