Indus Towers Limited · NSE:INDUSTOWER
Indus Towers — Bharti Infratel — Investor Presentation (February 2019)
53 slides from Indus Towers's investor presentation, February 2019
Slide 1: Investor Presentation Feb 2019
Investor Presentation Feb 2019 Building and Sharing Vital Infrastructure
Slide 2: 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 3: Table of Contents
Table of Contents Company Overview Industry Overview Business Model Strengths Proposed Merger with Indus In Summary 3 of 53
Slide 4: Company Overview
Ss » 2 Bharti Infratel Limited Company Overview 4 of 53
Slide 5: Bharti Infratel – Who We Are?
Bharti Infratel – Who We Are? A Leading Tower Infrastructure Operator Pan India Presence across all 22 Telecommunications Circles Indus Towers – JV between Bharti Infratel, Vodafone and Aditya Birla Telecom Top 2 Operators Anchor Customers & Relationships with all other Operators Marquee promoter an
Slide 6: Performance at a Glance
Performance at a Glance 92,301 towers and 174,449 co-locations(1) Market share in terms of installed tower base, FY15 40,192 towers of Bharti Infratel and 52,109 towers from 42% stake in Indus (1) Infratel + Indus: 40.8% Net decline in co-locations during Q3 FY19 and FY18 at 63 and 39,027 respective
Slide 7: Pan India Footprint: Leading Positions Across India
Pan India Footprint : Leading Positions Across India Pan India presence ⁻ Opportunities for voice growth in rural areas given rural penetration of 58.92%(1) ⁻ Data services to drive data consumption ⁻ Given inadequate wire-line infrastructure, wireless services expected to cater to new demand Bharti
Slide 8: Industry Overview
Ss » 2 Bharti Infratel Limited Industry Overview 8 of 53
Slide 9: Operator Industry Dynamics: Revenue Market Share
Operator Industry Dynamics: Revenue Market Share Post consolidation the Indian market expected to be dominated by three operators Top 3 operators (post consolidation) have 92.0% Revenue Market Share (RMS) Right of First Offer (RoFOs) from Non-discriminatory nature All operators are customers Shareho
Slide 10: Continued Operator Focus on Networks
Continued Operator Focus on Networks An operator agnostic business model, superior network footprint and service quality standards allow Bharti Infratel to capitalize on the growth in the data and voice market Operator Investment in Licenses1 Data Usage per customer (MB/month)2 3G/4G auctions held
Slide 11: Data Revolution Unfolding
Data Revolution Unfolding • Favorable demographics –Median Age of India’s population ~26 years • Wireless broadband penetration ~36%1 & Internet penetration ~43%2 • Availability of cheaper handsets, affordable price plans, introduction of new technologies and availability of rich content driving dat
Slide 12: India Mobile Data Trends
India Mobile Data Trends Findings from NSN MBIT Index • The Indian telecom market witnessed a paradigm shift in data consumption, with 4G traffic capturing 82% share of total data traffic in December 2017 • Increase in 4G device penetration, aggressive 4G network rollout, lower data prices, and deve
Slide 13: Network & Data Growth Forecasts and Recent Trends
Network & Data Growth Forecasts and Recent Trends Exponential Growth expected in Data over the next six years1 2017 2023e CAGR Mobile Subscriptions (mn) 1,200 1,390 2% Smartphone subscriptions (mn) 380 970 17% Data traffic per smartphone (GB/Month) 5.7 13 15% Total mobile data traffic (EB/month) 1.9
Slide 14: Phases of Data led Tower Revenue Growth
Phases of Data led Tower Revenue Growth Airtel has 100 sites in Delhi Due to Propagation effect Total Towers available with Circle (900 + 1800 Mhz) for 2G Airtel will need 150 sites on Indus in Delhi - 135 coverage 2100 MHz for 3G Loading all the existing Loading Revenue for STAGE 1 100 sites with 3
Slide 15: Business Model Strengths
Business Model Strengths 15 of 53
Slide 16: Business Model Strengths
Business Model Strengths 1 A Leading Tower Infrastructure Operator 2 Visibility of Future Revenues Through Long Term Contracts 3 Demonstrated Operational and Financial Performance 4 Implementation of Green Initiatives 5 Experienced Management 16 of 53
Slide 17: A Leading Global Tower Infrastructure Operator
A Leading Global Tower Infrastructure Operator Key Indian Tower Companies(1) Key Global Listed Tower Companies(1) 1.89(2) NA 1.0 1.0 NA 1.5 NA 2.2 1.8 1.6 1.7 Sharing Factor 2000 1800 180 1917 160 140 Towers (‘000s) 72 120 100 Bharti Infratel + 42% equity interest in Indus 168 80 60 92 40 76 69 20 4
Slide 18: Long Term Contracts with Visibility of Future Growth
Long Term Contracts with Visibility of Future Growth Key Features of Master Service Agreements (MSAs) Tenor Long term (10 to 15 years) with built in escalations (2.5% p.a) Termination Penalty Significant exit penalties A base rental rate is applicable, based on the following factors: Base Rent
Slide 19: Business Model Unique to India
Business Model Unique to India Key Features of Master Service Agreements unique to India unlike US Tower Cos Purpose Key Feature Result • It is not economically rewarding for the operators Most operators in India are not building Disarming The Operators to build new towers themselves towers on their
Slide 20: Towers and Co-locations
Demonstrated Operational and Financial Performance Stable tower growth… CAGR: 2.3% Towers (1) (1) Towers …coupled with increase in average sharing factor except recent quarters that have seen large exits due to consolidation 1.85 1.90 1.96 2.06 2.16 2.26 2.29 1.89 CAGR: 2.4% Co-locations(1) FY refer
Slide 21: Revenues and EBITDA
Demonstrated Operational and Financial Performance Strong revenue growth… Strong Operating Leverage Indexed to 100 CAGR CAGR: 7.8% 900 Revenues(1)(2) (US$m) 36.9% …faster EBITDA growth CAGR: 9.3% EBITDA Margin(3) EBITDA(1)(3) (US$m) 10.9% 7.9% 5.4% 2.2% Exchange Rate Used US$1 = 65.17 as on 31st Mar
Slide 22: Focus on Delivering Shareholder Value
Focus on Delivering Shareholder Value Bharti Infratel is focused on delivering return to its shareholders through multi-pronged strategy Pursuit of viable value accretive inorganic growth Leverage Diversified Customer Base to Capitalize on Data Growth Explore Opportunities to Return Cash to Sh
Slide 23: New opportunities for Telecom Infrastructure under Smart Cities Project
New opportunities for Telecom Infrastructure development under ‘Smart Cities’ Project Development of Smart Cities key for ‘Digital India’ Program Government has announced the creation of 100 Smart Cities Communication backbone is key to a Smart City Entails setting up of telecom infrastructure w
Slide 24: Resilience in Quarterly Financial Performance Despite Recent Exits
Resilience in Quarterly Financial Performance Despite Recent Exits Co-locations Revenue1 (US$m) Y-o-Y Change: -18.3% Y-o-Y Change: -0.4% EBITDA1 (US$m) AFFO1,4 (US$m) Y-o-Y Change: -6.2% Y-o-Y Change: -3.7% Note: Constant exchange rate of US$ 1 = INR 69.77 has been used, which is the closing exchang
Slide 25: Settlement on Exit Penalties
Settlement on Exit Penalties 55% cash settlement reached, balance via extensions with 2x revenues For exits until 30 November 2018, agreed on a settlement with ongoing operators i.e. Airtel and Vodafone-Idea 55% settlement in cash on consolidated basis, with a small portion received upfront whic
Slide 26: Implementation of Green Initiatives
Implementation of Green Initiatives Bharti Infratel has institutionalized ‘GreenTowers P7’ programme, aimed at minimizing dependency on diesel consumption and thereby, reducing the carbon footprint The ‘GreenTowers P7’ programme is based on seven innovative ideas deploying cleaner energy technol
Slide 27: Experienced Management Team
Experienced Management Team Joined Bharti Infratel in March 2008 as Director Work experience of over 31 years Akhil Gupta Certified Chartered Accountant and fellow member of ICAI. Completed an advanced management program at Chairman Harvard Business School. Has received various awards includ
Slide 28: CSR, Awards and Recognition
CSR, Awards and Recognition Awards and Recognition Best Smart Infrastructure Development by Business World • Bharti Infratel has been awarded the Best Smart Infrastructure Development by Business World at the 6th Smart Cities Conclave. The jury had evaluated the various government and non-government
Slide 29: Proposed Merger with Indus
Proposed Merger with Indus 29 of 53
Slide 30: Merger with Indus Towers: Merged Entity
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 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: 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 38: 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 39: 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 40: 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 40 of 53
Slide 41: 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 42: 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 Dec
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 • NCLT convened Shareholders’ and creditors’ m
Slide 48: In Summary
Ss » 2 Bharti Infratel Limited In Summary 48 of 53
Slide 49: Company Strategy
Company Strategy Promote Passive Infrastructure Sharing Capitalize on opportunities of Data Organic Growth and Acquisition growth, Digital India, Smart Cities Opportunities Initiatives of Government Achieving Cost Efficiencies Across Increasing Revenue and Capital Tower Portfolios Productivity 49 of
Slide 50: Investment Thesis
Investment Thesis Demonstrated Operational and Largest Indian Towerco with Financial Performance Insulated from Major Concerns - with ~1.9x Closing Sharing $-Re, Leverage, Import Factor Dependence Operator Agnostic Way to Benefit from Experienced Management Team Data Growth Favorable Regulatory High
Slide 51: Appendix
Ss » 2 Bharti Infratel Limited Appendix 51 of 53
Slide 52: Impact of Data Growth on Tower Industry
Impact of Data Growth on Tower Industry Expansion of 3G / 4G Networks by Operators will necessitate demand for towers Propagation on higher frequency band weaker Data usage to drive co-location growth 3G/4G only sites to drive tower demand Propagation effects in different bands Tower Multipl
Slide 53: Thank You
Thank You Building and Sharing Vital Infrastructure
Bharti Infratel — Investor Presentation (February 2019) on 6ix