Good source of value unlocking
* As per media sources American Tower Corporation is looking to buy the assets of ICISL (Idea Cellular Infrastructure Services Ltd), a wholly owned subsidiary of Idea Cellular. Idea Cellular through a business transfer agreement has transferred all its towers (9722) to ICISL w.e.f. August 01, 2016. Although, Idea has declined any such offer from ATC’s end we anticipate such deal may materialize in the future considering the company’s bid to create a war chest for intensified competitive intensity in the sector.
* With the number of tenancies at 16392, the current tenancy ratio currently stands at 1.68.
* On a comparative basis, Bharti Infratel Ltd (BHIN) with 90255 towers with tenancy of 2.24 trades at EV/tower of ~Rs. 6 mn per tower. Considering that ICISL’s tenancy is at 1.68, the 9722 towers should fetch anywhere between Rs. 43‐50 bn, or Rs. 12‐14 per share to the value.
* The deal should comprise commitment from Idea to continue with the current tenancy for some future tenure as anchor client even after the Vodafone‐Idea merger.
* Additionally in the same vein, Bharti Airtel is looking to monetize its sate in Bharti Infratel, although the same has been trimmed to a mandate of selling non‐controlling stake (~21.63%) from earlier (Oct‐2016) mandate to sell controlling stake in the company.
The stock has already reacted to the development yesterday, additionally there are stories doing round of further clarity might emerge on potential Vodafone‐Idea merger by the end of the week. At CMP of Rs. 113, the stock is trading at 7.2x FY18E and 5.7x FY19E EV/EBITDA estimates. We maintain HOLD rating on the stock with a TP of Rs. 102 per share (assigning an EV/EBITDA multiple of 5.5x FY19E).
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