Indus Towers Limited · NSE:INDUSTOWER
Indus Towers — Bharti Infratel — Investor Day (January 2019)
59 slides from Indus Towers's investor day presentation, Jan 8, 2019
Slide 1: Bharti Infratel Limited - Investor Presentation filing
~ Bharti Infratel Limited January 8,2019 BSE Limited National Stock Exchange of India Limited Phiroze Jeejeebhoy Towers, Exchange Plaza, C -1, Block G, Bandra kurla Complex, Dalal Street, Mumbai-400001 Bandra (E), Mumbai 400 051 Ref: Bharti Infratellimited (534816/ INFRATEl) Sub: Investor Presentati
Slide 2: Company presentation
Company presentation 8th January 2019 Building and Sharing Vital Infrastructure Slide: 1 of 33
Slide 3: Disclaimer
Disclaimer • By attending the meeting where this presentation is made, or by reading the presentation materials, you agree to be bound by the following limitations: • The information in this presentation has been prepared by Bharti Infratel Limited (the “Company”) for use in presentations by the Com
Slide 4: Agenda
Agenda • Changing telecom landscape • Impact on Operator & Tower companies Regulatory landscape • Opportunities • Bharti Infratel 2.0 Slide: 3 of 33
Slide 5: Changing telecom landscape
Changing telecom landscape 1G 2G 3G 4G 5G 1980 1991 2001 2009 2019 Global N/A 1995 2008 2014 2020 India 900 MHz 900 MHz 850MHz, 1800 <1 GHz, 1-6 Spectrum 1800 MHz 2100 MHz MHz, 2300MHz GHz, >6 GHz Speeds 64 kbps 2 Mbps 200 Mbps >1 Gbps Latency 500 -1000 ms 50 - 200 ms 25 – 100 ms <= 1 ms With M2M an
Slide 6: Trends
Trends • Voice to data demand • Increasing data speeds • Technology cycle shrinking • Band to ‘Bandwidth’ for higher speeds • Bandwidth only in higher bands; i.e. need higher frequencies • Better user experience necessitates lower latency demands • Favorable regulatory environment for Infrastructure
Slide 7: Impact
Impact • Uniform high speeds require site densification • Higher frequency signals travel lesser distances • Fiber a necessity to backhaul • Capex requirements going up and hence sharing is imperative • Service differentiation would be the key Slide: 6 of 33
Slide 8: User speed reduces with distance from site
User speed reduces with distance from site >100 Mbps 100 Mbps 10 Mbps 0.1 Mbps Site densification needed to give uniform speeds for applications Slide: 7 of 33
Slide 9: More sites required for coverage on higher frequency
More sites required for coverage on higher frequency 2G Spectrum 3G / 4G Spectrum High bandwidth 5G likely to be in 3.5Ghz frequency bands Source: Analysys Mason Slide: 8 of 33
Slide 10: High backhaul capacity needs call for Fiber
High backhaul capacity needs call for Fiber Backhaul Capacity per BTS Drivers for fiber • Microwave capacity limitations 2G 2 – 4 Mbps • Low latency demands 3G 12 – 30 Mbps • Losses due to large distances • Poor wireline availability 4G 30 – 120 Mbps • More data is consumed indoors 5G > 1 Gbps % Fib
Slide 11: Increasing investment by operators
Increasing investment by operators Spectrum Outlay 2010 2012 2014 2015 2016 Cumulative Spectrum (Rs bn) 1,063 94 672 1,099 658 3,585 (USD bn) 15.9 1.4 10.1 16.4 9.8 53.7 Capital FY19 (H1 FY15 FY16 FY17 FY18 investment annualized) Non-Spectrum * (Rs. Bn) 219 280 296 337 372 (USD Bn) 3.3 4.2 4.5 5.1 5
Slide 12: Pan India 4G launch
Growth trends with 4G launch 9GB for data customers Pan India 4G launch With increasing penetration of 4G and implementation of 5G, a bigger leap is expected Source: TRAI reports Slide: 11 of 33
Slide 13: Consolidation in operator landscape
Consolidation in operator landscape… Dec 2013 11 down to 4 Dec 2018 Larger and stronger operators to take on data led opportunities Slide: 12 of 33
Slide 14: Operator consolidation impact on Bharti Infratel
Operator consolidation impact on Bharti Infratel 27,769 Churn since Q1 FY17 in consolidated Bharti Infratel 9,813 8,562 5,657 2,711 1,179 1,387 1,048 186 271 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Worst behind us, industry impact significantly higher Source:
Slide 15: Leading to consolidation in tower market
Leading to consolidation in tower market Key Players OpCo owned towers Other players Changing landscape as we head towards more independent tower companies Slide: 14 of 33
Slide 16: Changing regulatory landscape
Changing regulatory landscape Slide: 15 of 33
Slide 17: National Digital Communications Policy 2018
National Digital Communications Policy 2018 India’s transition to a digitally empowered economy and society by fulfilling Vision ICT needs of citizens and enterprises by establishment of a ubiquitous, resilient and affordable Digital Communications Infrastructure and Services. • Connect India: Creat
Slide 18: Impact on tower companies
Impact on tower companies 60% towers fiberization Cabling (IBS) for Accelerated rollout of buildings compulsory fiber in government through NBC premises Incentives and Common service exemptions for tower Key takeaways ducts alongside roads construction / highways Scope enhancement of IP1s to include
Slide 19: Opportunities
Opportunities Slide: 18 of 33
Slide 20: Multiplier effect on data consumption
Multiplier effect on data consumption ∞ No Limit Limit Usage / user Usage / user Limit No. of users No. of users Growth in voice usage Growth in data usage Capacity = No. of users Usage per user Data, unlike voice, is not limited by number of subscribers or usage Slide: 19 of 33
Slide 21: Mobile subscriptions forecast
Mobile subscriptions forecast 3.5 Bn 4G subscriptions against <2Bn 4G subscriptions as envisaged in 2014 4G technology adoption exceeded expectations by over 2X Source: Ericsson Mobility Report November 2018 and 2014 Slide: 20 of 33
Slide 22: Different kinds of sites
Different kinds of sites Improve macro More spectrum, Multi Carrier, MIMO, Advanced Antennas, etc Densify Higher Additional Macro data rates Higher capacity Add “Small Cell” Very high data rates Macro + ”Small Cells” Very high capacity Slide: 21 of 33
Slide 23: How densification will play out
How densification will play out Improve Densify Add Area traffic density Improve Densify Improve Dense Urban Suburban Rural urban Slide: 22 of 33
Slide 24: Working towards a service differentiation
Working towards a service differentiation Existing sites 180k 200k > 220k Would have to catch up / rationalize Market growth will be led by macro densification and small cells Source: Company fillings, Street estimates, News reports Slide: 23 of 33
Slide 25: New type of opportunities will emerge
New type of opportunities will emerge Current opportunities › Macro densification Small cell › In-building solutions (IBS) Macro › Smartly placed “small cells” Small cell IBS Adjacent opportunities Wi-Fi IBS › Wi-Fi complementing 3GPP Cluster of access small cells › Fiber backhaul for high capacity
Slide 26: Bharti Infratel 2.0
Bharti Infratel 2.0 Slide: 25 of 33
Slide 27: Company Strategy
Company Strategy Promote Passive Infrastructure Sharing Capitalize on opportunities of Organic Growth and Data growth, Digital India, Smart Acquisition Opportunities Cities Initiatives of Government Achieving Cost Efficiencies Increasing Revenue and Capital Across Tower Portfolios Productivity Slide
Slide 28: Investment Thesis
Investment Thesis Demonstrated Operational and Financial Performance Insulated from Major Concerns - Largest Indian Towerco with $-Re, Leverage, Import over 1.9x Sharing Factor Dependence Operator Agnostic Way to Benefit from Experienced Management Team Data Growth Regulatory Environment High Standa
Slide 29: Bhopal Smart City: Architecture
Bhopal Smart City: Architecture Energy saving from LED Item Deployed lighting Intelligent energy-saving Smart Pole 150 Monetisation: lighting • Revenue from mobile LED Lights 21000 service providers • Wi-Fi City owned Use of Free • Fibre secure data frequency/ WiFi Hotspot 100 • Advertisement proces
Slide 30: Smart City expertise
Smart City expertise Setting up of infrastructure which will include poles, micro sites and fiberized backhaul PPP long term contracts Shared ICT infrastructure is the key enabler of the smart city Smart Cities to throttle us ahead to capitalize on new opportunities Slide: 29 of 33
Slide 31: Opportunities for Infratel
Opportunities for Infratel • Existing areas of business Maximizing organic business Small Cell In Building Solutions • New areas Fiber sharing Wi-Fi Smart cities BTS Hotel Managed services • Selectively evaluate inorganic growth 5G will bring opportunities for NetCo and Data Center S
Slide 32: Thank you
Thank you 8th January 2019 Building and Sharing Vital Infrastructure Slide: 31 of 33
Slide 33: Glossary
Glossary Term Definition 3GPP 3rd Generation Partnership Project Bn Billion BTS Base Transceiver System CCTV Closed Circuit Television DAS Distributed Antenna System FY Fiscal Year GDP Gross Domestic Product IBS In-Building Solutions ICT Information and Communication Technology IoT Internet of Thing
Slide 34: Glossary
Glossary Term Definition MIMO Multiple Input Multiple Output MoU Minutes of Usage Ms Milliseconds M2M Machine to Machine NDCP National Digital Communications Policy NetCo Network Company OFC Optical Fiber Cable Rs / Re Rupees Towerco Tower Company USD United States Dollar Wi-Fi Wireless Fidelity Sli
Slide 35: Proposed Merger with Indus Towers
Proposed Merger with Indus Towers Dec 2018
Slide 36: Disclaimer
Disclaimer By attending the meeting where this presentation is made, or by reading the presentation materials, you agree to be bound by the following limitations: The information in this presentation has been prepared by Bharti Infratel Limited (the “Company”) for use in presentations by the Company
Slide 37: Merger with Indus Towers
Merger with Indus Towers Merged & Entity Via All Stock Transaction Or Via Part Stock Part Cash Transaction Note: 1. The merged entity will fully own the respective businesses of Bharti Infratel and Indus Towers, will change its name to Indus Towers Limited and will continue to be listed on the India
Slide 38: Merger with Indus Towers
Merger with Indus Towers Issues shares to Vodafone Group for 42% of Indus Issues shares to Vodafone-Idea for 11.15% of All Stock Indus Transaction Issues shares to Providence (PEP) for 4.85% of Indus Or Issues shares to Vodafone Group for 42% of Indus Part Stock Part Issues shares to PEP for 1.5% of
Slide 39: Merged Entity: Operational and Financial Snapshot
Merged Entity: Operational and Financial Snapshot Towers, Co-locations and Revenue, EBITDA and Sharing Factor (1) Profit After Tax (2) Average 2.04x Sharing Factor 1) Data as of 30 September 2018 2) Estimates based on LTM data ending 30 September 2018, assuming merger was effective on 1 October 2017
Slide 40: Rationale for the Transaction
Rationale for the Transaction Attractive valuation for existing Infratel shareholders, Indus @5.2% discount on relative valuations for share election and 10% discount for cash election Enhancement in Return on Equity (ROE) due to improvement in capital structure Up to 0.6x Net Debt/EBITDA vs. Net Ca
Slide 41: Rationale for the Transaction (contd.)
Rationale for the Transaction (contd.) Simplified shareholding structure with no single operator holding majority in the merged entity Shares in a listed entity provides exit opportunity to shareholder operators of Indus Operational synergies in the form of capex/opex envisioned Creating the largest
Slide 42: Attractive Valuation for Existing Infratel Shareholders
Attractive Valuation for Existing Infratel Shareholders Construct for Issuance of Shares: Discount of 5.2% on relative valuations The merger ratio as at the date of agreement is 1,565 shares in Infratel for every one Indus share. The merger ratio has been based on agreed relative Enterprise Valu
Slide 43: Enhancement in Return on Equity due to Improvement in Capital Structure
Enhancement in Return on Equity due to Improvement in Capital Structure ROE improves by 265 bps to 18.4% post transaction driven by improvement in capital structure Notes: • Infratel Consol refers to pre-merger entity with 42% ownership in Indus • Data for Infratel Consol is actual for quarter endin
Slide 44: Up to 0.6x Net Debt/EBITDA vs. Net Cash position currently
Up to 0.6x Net Debt/EBITDA vs. Net Cash position currently Post Transaction Transaction to improve capital structure by bringing higher leverage to the merged entity Notes: • Infratel Consol refers to pre-merger entity with 42% ownership in Indus • Data for Infratel Consol are actuals based on closi
Slide 45: Accretion in Earnings Per Share
Accretion in Earnings Per Share… Post Transaction EPS accretive in all scenarios despite dilution driven by lower effective tax rate Notes: • Infratel Consol refers to pre-merger entity with 42% ownership in Indus • Data for Infratel Consol is actual for the financial year ending 31 March 2018 • Dat
Slide 46: Possible increase in Dividend Per Share
…and correspondingly possible increase in Dividend Per Share Payouts made by the merged entity will be more tax efficient as currently there is a dual incidence of Dividend Distribution Tax (first paid by Indus and subsequently by Infratel on declaration of dividend to its shareholders) which will
Slide 47: Removal of Holdco Discount
Removal of Holdco Discount Removal of holdco discount for Indus could theoretically uplift Infratel equity value by ~5-10% Notes: Data using EV/EBITDA LTM Sep’18 multiple of 7.22x for Bharti Infratel 13 of 25
Slide 48: Simplified Shareholding Structure
Simplified Shareholding Structure No single operator owning majority stake in the merged entity Provides global investors direct access to the ~124k towers of Indus Shares in listed entity provide exit opportunity to shareholder operators of Indus Single entity with one set of Board of Direc
Slide 49: Shareholding Structures
Shareholding Structures Current: Indus and Infratel Post Transaction: Merged Entity 1) Current Infratel public shareholding includes 10.34% held by Silverview Portfolio Investments Pte. Ltd. (KKR) and Canada Pension Plan Investment Board (CPPIB) 2) Bharti Airtel shareholding in the Company as on Sep
Slide 50: Capex and Opex Synergies Envisioned
Capex and Opex Synergies Envisioned Likelihood of saving by way of lower administrative cost, Opex Related savings on account of common expenses, tower operating Synergies center costs etc. The head office cost for the merged entity was in the vicinity of Rs.3-4bn during FY 2017-18. Volume dis
Slide 51: Creating the largest in-country towerco outside China
Creating the largest in-country towerco outside China Key Indian Tower Companies(1) Key Global Listed Tower Companies(1) Sharing Factor 2.04(2) 1.5 NA 2.04(2) 2.2 1.59 1.63 1.73 2000 1800 1879 Towers (‘000s) For the purpose of this chart, Indus refers to the merged entity and includes Bharti Infrate
Slide 52: Details of Merger and Valuation Construct
Details of Merger and Valuation Construct Vodafone Group shall swap its 42% in Indus against shares in combined entity as per valuation construct Providence or PEP shall swap its 1.5% in Indus against shares in combined entity on same basis as Vodafone Group Basic Construct Vodafone-Idea for i
Slide 53: Governance, Dividend Policy and Other Highlights
Governance, Dividend Policy and Other Highlights Joint Governance and Bharti Airtel and Vodafone Group will have equal rights in the combined company Management 11 member Board of whom: 3 will be appointed by each of Bharti Airtel and Vodafone Group Board of Directors and 1 will be appointed
Slide 54: Mitigating the renewal risk and securing future cash flows
Mitigating the renewal risk and securing future cash flows Right of first refusal from Bharti Airtel and Vodafone-Idea to continue for a period of five years for availing passive infrastructure services from the merged entity with some carve outs/exemptions and commitments. Large part of the co-
Slide 55: Merger Timelines
Merger Timelines • Merger Announcement Apr 2018 • Approval received from Competition Commission of India (CCI) Jun 2018 • No adverse objection letters received from Stock Exchanges – Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) Jul 2018 • Approval from National Company Law Tribunal
Slide 56: In Summary
Ss » 2 Bharti Infratel Limited In Summary 22 of 25
Slide 57: Strategy for the Merged Entity
Strategy for the Merged Entity Promote Nationwide Passive Infrastructure Sharing Capitalize on opportunities due to Organic Growth and Acquisition data growth, Digital India, Smart Opportunities Cities’ Initiatives of Government Increasing Revenue and Capital Achieving Cost Efficiencies Productivity
Slide 58: Investment Thesis
Investment Thesis Demonstrated Operational Largest listed Indian Insulated from Major and Financial Performance towerco with ~1.9x Closing Concerns - $-Re, Leverage, Sharing Factor Import Dependence Operator Agnostic Way to Experienced Leadership Benefit from Team Data Growth Regulatory Environment
Slide 59: Thank You
Ss » 2 Bharti Infratel Limited Thank You 25 of 25