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Management Discussion  
Bharti Infratel Ltd.
BSE Code 534816
ISIN Demat INE121J01017
Book Value(Rs.) 54.87
Dividend Yield % 4.81
Market Cap(Rs. in millions) 588169.99
P/E 28.15
EPS 7.75
Face Value(Rs.) 10  
Year End: March 2016

Management Discussion & Analysis

Economic Overview

India is among the world's fastest-growing major economy. As per the recent report by The World Bank, India ranks seventh globally in terms of GDP at current prices and is expected to grow at 7.5% in FY 2016-17. The improvement in India's economic fundamentals has accelerated in the year 2015 with the combined impact of strong government reforms, RBI's inflation focus supported by benign global commodity prices.

The steps taken by the government in recent times have shown positive results and Indian economy expanded on account of healthy expansion in private consumption and fixed investment, as well as robust growth in manufacturing. Buoyed by measures to enhance foreign direct investment— including raising the ceiling for investment in several important sectors such as broadcasting and defense, as well as rationalising and simplifying procedures—net flows of foreign direct investment surged to an estimated US$ 32 Bn, nearly 26% higher than in the brvious year.

According to a Goldman Sachs report released in September 2015, India could grow at a potential 8% on average during from fiscal 2016 to 2020 powered by greater access to banking, technology adoption, urbanisation and other structural reforms.

The Government has lined up massive investments to create the jobs, housing, and infrastructure to meet soaring aspirations. A revival of private investment and rural consumption is critical for growth in coming years. Budgetary support for programs aimed to improve agricultural productivity and funding of the government employment scheme for poor rural families should boost rural incomes and spending. Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India. These initiatives are expected to increase the purchasing power of an average Indian consumer, which would further boost demand, and hence spur development, in addition to benefiting investors.

India is expected to continue moving on growth path due to improved investor confidence, lower food and commodity prices and better policy reforms.

Indian Telecom Industry overview

India is currently the world's second-largest telecommunications market and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India's gross domestic product (GDP), according to report brpared by GSM Association (GSMA).

2015 was a defining year for Indian telecom as we entered a new phase of telecom growth. We witnessed a data driven growth, beginning of broadband rollout, increased smart phone uptake and more applications / content. We saw free Over-the-Top (OTT) applications redefine the market and the public reacting strongly towards net neutrality with greater awareness across various platforms. Successful auction of spectrum in early 2015 led telecom operators to aggressively rollout 3G networks that further facilitated the growth of data.

Over the last decade, the wireless segment of the telecommunications sector has grown exponentially both in terms of reach and functionality. The mobile subscriber base rose to around 1.03 Bn at the end of February 2016 (source - TRAI) from 99 Mn at the end of 2005-2006. India is also rapidly transforming from a 'voice centric' market to a 'data dominant' market. This provides a huge opportunity for telecom tower industry, especially given the low penetration of telephony in rural India, as well as the off take of data services in urban India.

Driven by strong adoption of data consumption on handheld devices, the total mobile services market revenue in India is expected to touch US$ 37 Bn in 2017, according to research firm IDC. As per the latest NSN MBiT Index the overall data usage grew from 26 Petabyte for Calendar Year 2012 to 128 Petabyte for Calendar Year 2015; a growth of ~ 392% over the period of 4 years. 3G has been the driver of growth in overall mobile data consumption in India and 3G data consumption grew at 86% while 2G was able to achieve 12% growth for the year ended on December 31, 2015. This is further augmented by the fact that a 3G subscriber consumes close to 750MB of data which 3.5 times more data than his 2G counterpart does.

We believe that Telecom sector in general and mobile broadband in particular will continue to witness robust growth in years to come. Key trends in 2016 will be:

O Continuous development of 4G ecosystem and new 3G & 4G launches by various operators;

o Large scale data plus voice rollouts;

O Focus on quality;

o Focus on capacity building.

The ongoing expansion of the mobile ecosystem, coupled with demand for high-bandwidth applications and services such as video and gaming, is keeping brssure on the industry to increase the availability and quality of broadband connectivity. All this will lead to an acceleration in rollout of infrastructure which bodes well for tower industry.

Highlights of the Year

o The investors reposed their faith in the robustness of the business model and the Foreign Institutional ownership touched an all-time high of 25.73% on December 31, 2015 as compared to 8.65% at the time of IPO in December 2012;

o During FY 2014-15, Infratel was included in the list of stocks eligible for F&O trading on stock exchanges;

o The stock was added to MSCI India Index with effect from May 29, 2015;

O The Company was included in the flagship NIFTY 50 index with effect from April 1, 2016.

Regulatory Changes in the Sector

Key regulatory developments during FY 2015-16 were as follows:

Direction Issued by Central Pollution Control Board (CPCB)

CPCB, vide its direction dated March 7, 2016, stipulated that "Stand-alone DG Sets having total capacity 1 MVA or less and equipped with acoustic enclosures along with adequate stack height may be exempted from the purview of Consent management." This could be of immense assistance to our industry. The State Pollution Control Board / Pollution Control Committees have been directed by CPCB to adopt the same.

Amendment in Unified License Agreement by Department of Telecommunications (DoT)

The DoT, vide its letter date February 11, 2016, amended the TSPs Agreements. It now provides that "sharing of Active infrastructure amongst Service Providers based on the mutual agreements entered amongst them is permitted. Active Infrastructure sharing will be limited to antenna, feeder cable, Node B, Radio Access Network (RAN) and transmission system only".

Telecom Tower Standards

DoT, vide letter dated February 24, 2016, has decided that instead of mandatory use of Telecom Tower standards i.e Generic Requirements (GRs) issued by TEC for all telecom towers erected / used by TSPs, it is left to the industry to follow TEC GRs as one of the options for designs and deployment.

Department of Telecommunications release the guidelines on Spectrum Sharing

On September 24, 2015, Department of Telecommunications (DoT) issued the guidelines on Spectrum Sharing. Highlights are as under:

o Spectrum sharing will be allowed only for the access service providers holding Cellular Mobile Telephone Service (CMTS) / Unified Access Service License (UASL) / Unified License (Access Services) (UL (AS)) / Unified License (UL) with authorisation of Access Service in a Licensed Service Area (LSA), where both the licensees are having spectrum in the same band;

o Both the licensees shall ensure that they fulfil the specified roll-out obligations and specified Quality of Service (QoS) norms.

Opportunities & Threats


Roll out of New Technologies / Spectrum Auctions / High QoS demand by Government

The Indian wireless market is experiencing a rapid increase in demand for mobile data services, driven by India's strong demographics and availability of wide variety of affordable handsets. The growth in mobile data has also been fuelled by virtual non- existence of fixed line broadband networks. There has been a multiplication effect in data usage as the number of users are increasing through increased smartphone penetration and per user data usage is also increasing with proliferation of relevant applications and rich content.

Operators have spent over Rs. 2,900 Bn on the spectrum licenses since 2010 and are now intensely focused on growing the data story. During the recent times, most of the big players have acquired spectrum in a way to offer data services in maximum number of circles through 3G or 4G. The strategy has been to acquire more spectrum through auctions or through spectrum trading deals to enable data services in all the circles. The top 3 operators (our anchor customers) have also increased their spectrum holding in select circles. In 14 circles, fresh 2100 Mhz has been bought by the operators, which will be used for 3G network rollouts. In recent spectrum trading deals, Airtel has acquired spectrum from Videocon and Aircel and the same will be used for rollout of 4G services.

The expansion of 3G and 4G network services will require service providers to install additional active transmission equipment at the towers where they currently operate. In addition to this, we expect that the increasing proliferation of such services and the higher tower density required will lead to fresh demand for new towers and tenancies from customers. We are already witnessing demand for data only tenancies on account of densification requirements of the networks in Metros and Tier 1 cities.

Low Rural Penetration Levels

Indian telecom market has a huge untapped potential in the rural areas. With rural tele-density still at 51% (as in February 2016, Source - TRAI), there is significant headroom for growth in voice services currently and in data services over time in the untapped areas.

The high cost of providing services and the ability to quickly deploy state of the art networks will translate into growth opportunities for the Company. Already, Bharti Infratel has a wide footprint in the Category B and C circles enabling the expansion of networks in rural markets.

Entry of Reliance Jio as New Telecom Operator

The entry of Reliance Jio with pan India Unifed License in the telecom business is positive news for tower companies. Reliance Jio aims to be a pan India 4G player with mobile data as a primary product. To cover the same geographical area, 4G technology requires a much higher number of towers than 3G and 2G. We have got some orders from Jio and all these orders are primarily for data co-locations.

New Revenue Streams

Considering the proliferation of data services through expansion of 3G / 4G network and infrastructure expansion across cities, we expect a likely surge in demand for In-building solutions (IBS) as well. In-building deployments are capacity solutions and are rolled out to create more bandwidth in a small area. These solutions are particularly helpful in high foot fall areas like Airports, Malls, Hospitals and Hotels etc. These solutions not only improve the user experience in the area but also free up macro network for street level coverage.

Global data usage reports suggest that close to 70% of data is generated indoors and the fast pace of data uptake will brsent many new opportunities for tower companies in future, most notable being:

O IBS installations - We are deploying IBS network installations for our customers at high footfall locations on trial basis;

o Wi-Fi Hotspots - The Company is looking to foray into rollout of wi-fi hotspots and offer B2B wi-fi to all the operators on a non-discriminatory basis. A proof of concept for outdoor WiFi has already been demonstrated in Odisha on behalf of Airtel;

o 'Smart Cities' - 'Digital India' is one of the biggest focus areas of the Government of India. Development of 'Smart Cities' is a key initiative under the 'Digital India' Program and the Government has already announced the creation of 100 'Smart Cities'. Communication backbone is the key to a smart city and this will entail setting up of telecom infrastructure which will include tower setup, micro site and fiberised backhaul network. Tower companies are well positioned to capitalise on this opportunity. We are engaging with the Government to explore all the possibilities of telecom infrastructure deployments in Smart Cities. Possibility of offering transmission backhaul through optical fibre connectivity at towers, subject to favorable regulatory changes, as well as providing first level maintenance services in relation to customers' active infrastructure installed at towers.

We continue to look for such opportunities across the country and are brpared to meet the customer's needs to deploy additional data networks and share it with everyone on a non-discriminatory basis. We shall assess all the available opportunities and businesses that are in accordance with the Company philosophy and are value accretive. All such businesses will be taken up in consultation with the Board of Directors.

Clarity in Regulatory Environment

After continuous regulator uncertainty in the past, the last 2 years have been better. Clarity emerged on spectrum pricing with successful auctions in February 2014 and March 2015. The spectrum available is for 20 years and technology neutral, also major renewals for top 3 operators are already done. The outlook for the operators is much better than what it was couple of years back and this will prove to be a catalyst for accelerated network rollouts in future. This year, spectrum sharing and trading guidelines were also put in place. The spectrum trading guidelines in particular are helpful and leading to consolidation in the industry as it has provided exit route to smaller operators and the spectrum thus acquired by the bigger operators will be put to better use and rollout services in newer areas.

The quest for quality, profitabilité and viability on the operator side is a welcome sign for long-term growth of the tower industry.


General Economic Conditions in India

The Indian economy witnessed slow growth over the last several years that hurt investor sentiment and the industry had postponed capex investment. The new Government has assured to take all the necessary steps to revive the investment sentiment in the country. We are already witnessing initial positive signs; recent GDP growth fiscal discipline and steps towards inclusive growth are all positive indicators.

Bharti Infratel's business and growth prospects mainly depend on demand from wireless telecommunications service providers in India and any disruption to a fair, transparent and sustainable telecom regime will affect the Company adversely.

EMF Radiation Norms

EMF radiations are the invisible electric and magnetic forces arising from the active infrastructure installed at telecom towers. In the recent past some people have raised concerns around the radiations and its ill effects due to which securing a site for new tower addition has become difficult in few pockets. This might affect tower company business adversely if proper information is not disseminated to general public.

The EMF radiation norms in India are even tougher than Europe and non-adherence can invite hefty fines from the regulator. Also, there has been no conclusive evidence of the ill effect of radiations on human health. DoT has recognised this issue and has started educating people through various campaigns and media articles. Also, DoT has set up 'TERM Cells' to monitor the radiations and certify the locations.

The Government of India has acknowledged the fact that misinformation about EMF is leading to difficulty in securing new tower sites especially in Metros and the Government has been working closely with the operators and tower companies to dispel rumors around EMF radiations and its ill effects.

Operator Consolidation

The Telecom market in India was fragmented with more than 14 players at one point of time. The Average Revenue per User (ARPU) in India is lowest in the world and the industry went through a phase of hyper competition in recent years. Today, the operators are in much better shape and have been able to stop the price decline. The consolidation of operators may lead to co-location churn for tower companies due to consolidation and rationalisation of networks. Bharti Infratel is largely insulated from this as more than 85% of the revenues come from the top three players in the industry and these three players are expected to be acquirers rather than being targets. In the long run, we believe that consolidation is good for the industry.

Financial Results & Operations

Bharti Infratel has put up a healthy performance in FY 2015-16.

On a consolidated basis, the Company added 2,916 towers and 12,741 net co-locations during the year. As on March 31, 2016, average sharing factor stood at 2.19 times, on a consolidated basis (with a closing sharing factor of 2.20)

Our consolidated revenue from operations for the year ended March 31, 2016 was Rs. 123,084 Mn, a growth of 5.5% compared to year ended March 31, 2015. Our consolidated revenue comprises of primarily revenues from co-locations of Bharti Infratel and 42% economic Interest in Indus Towers and their energy billings. As on March 31, 2016, Bharti Infratel and Indus Towers had average sharing factors of 2.11 (with closing sharing factor of 2.12) and 2.25 (with closing sharing factor of 2.25) per tower, respectively.

The Company had an EBITDA of Rs. 54,031 Mn witnessing a growth of 7.8% year on year. The EBITDA margin for the financial year ended March 31, 2016 was 43.9%. The Company reported a net income of Rs. 23,820 Mn for the full year ended March 31, 2016, registering Y-o-Y growth of 19.6%.

The financial statements of the Company have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 2013. The financial statements have been brpared under the historical cost convention on an accrual basis except in case of assets for which fair valuation is carried out. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year.

Risks & Concerns

The following section discusses the various aspects of enterprise-wide risk management. Readers are cautioned that the risk related information outlined here is not exhaustive and is for information purpose only.

Bharti Infratel believes that risk management and internal control are fundamental to effective corporate governance and the development of a sustainable business. Bharti Infratel has a robust process to identify key risks across its operations and prioritise relevant action plans that can mitigate these risks. Key risks that may impact the Company's business include:

Changes in Regulatory Environment

Despite huge improvements, the regulatory environment in India continues to be challenging. Regulatory developments will have significant implications on the future of telephony as well as India's global competitiveness. Any adverse regulatory change may affect the profitability outlook of the operators, which in turn will affect us as we derive our revenues from telecom operators in India who are our customers.

Natural Disasters Damaging Telecom Networks

The Company's telecom networks are subject to risks from natural disasters or other external factors. The Company maintains insurance for its assets, equal to the replacement value of its existing telecommunications network, which provides cover for damage caused by fire, special perils and terrorist attacks. Such failures and natural disasters even when covered by insurance may cause disruption, though temporary, to the Company's operations. The Company has been investing significantly in business continuity plans and disaster recovery initiatives which will enable it to continue with normal operations and offer seamless service to our customers under most circumstances.

During the floods in Chennai, the Company was able to demonstrate its operational excellence and disaster management skills. Our people's efforts and robust processes helped us restore operations promptly, thus ensuring vital telecom connectivity at all times. The Company's commitment towards service excellence even in times of crisis has been well apbrciated by all customers and establishes robustness of our business continuity plans.

Technological Changes Affecting the Tower Demand

The potential future demand for towers could be affected by technological changes and advancements. There have been some trials in the past like Google Project Loon and other related technologies which can provide mobile broadband access by placing some balloons or low orbit satellites in the air thus bypassing the need for towers.

None of these solutions have been commercially / technically deployed yet and the cost is also unclear. We don't foresee any risk in near future and the Company will keep assessing all the new technology advancements in the sector. For a better understanding and brparedness.

Internal Control Systems

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are accountable for financial controls, measured by objective metrics on accounting hygiene and audit scores. The Company deploys a robust system of internal controls that facilitates the accurate and timely compilation of financial statements and management reports, ensures regulatory and statutory compliance, and safeguards investor interest by ensuring the highest level of governance and periodic communication with investors.

The Audit Committee reviews the effectiveness of the internal control system across the Company and also invites the senior management / functional heads to provide an update on their functions from time to time. A CEO and CFO Certificate included in the Corporate Governance Report confirms the existence of effective internal control systems and procedures in the Company. The Company's Internal Assurance Group also conducts periodic assurance reviews to assess the adequacy of internal control systems and reports to the Audit Committee of the Board.

The Company has enhanced its internal control systems across all circle operations by significantly improving the quality and frequency of various reconciliations, enhancing the scope and coverage of revenue assurance checks, segregation of duties, rolling out self-validation checks, regular physical verification, systems audits, desktop reviews as well as continuous training and education.

In summary, the healthy balance between empowerment and accountability at every operating level fosters a culture of responsible growth and well-judged risk taking.

Material Developments in Human Resources

At Bharti Infratel, we believe people excellence is the foundation for building a culture of service excellence. Our aim was to sustain our fervour as an employer of choice and outlined key focus areas during the year to achieve this goal:

Hiring Best Talent

We continue to hire talent educated from brmier institutes and with brvious work experience in reputed organisations for lateral hires. We have the 'Quality of Hire' parameters in order to attract & hire quality talent.

The Company has hired 13 young talents from brmier technical institutes like NITs as a part of our Graduate Engineer Trainee (GET) program focusing mainly on institutes from the North East. These young recruits are going through a rigorous development program aimed at accelerating their career and for developing young leaders of tomorrow. Our trainees from brvious batches have taken up mid-management roles in our Operations team post completion of the development program.


During FY 2015-16, we moved ahead with our Diversity vision for the Company. Our vision was to promote a diverse and inclusive environment by building a diversity enabling culture through education, inclusiveness, collaboration, and respect. We conducted the 'Women in Business' conclave wherein eminent personalities from different industries interacted and shared ideas with all women employees.

This year improving gender diversity remained a key focus area and gender diversity hiring has improved from 12% to 15% and the diversity ratio has increased from 5.5% to 6% in FY 2015-16.

Career Framework and Career Plans

We have developed functional career paths and career plans in form of the 'RISE' program for all eligible employees. We strengthened the internal job posting process in order to provide larger roles to our talent across geographies. The internal job postings have been made online to provide visible opportunities of growth. There has been a huge focus on driving career conversations between managers and employees to capture career aspiration of employees. This year, we were able to provide numerous role changes within and across circles and functions as part of the career planning.

Talent Development

Competency development of our people is focused towards increasing performance at current role and brparing for future roles. We have designed and implemented a new leadership competency framework called 'Infratel DNA', which defines the behaviours critical for success at Infratel. Our process is focused on differentiation of employees based on potential and developing a proposition for high potential talent. All our learning offers have been designed to develop the Infratel DNA in our people. The complete learning and development has moved online with the launch of i-Learn, our new Learning Management System where the ownership of an employee's development is in their own hands. This is an online platform where an employee can explore a plethora of learning opportunities and nominate himself for programs of interest. The focus is on developing leaders for tomorrow.

Employee Recognition

This year our focus was to enhance employee recognition on an online platform. We reintroduced our recognition scheme 'Applause' online linked to the intranet. This was well received and employees were recognised at all levels for key achievements and for displaying the Infratel DNA. We also highlighted the top recognisers and awardees on the portal. This has led to real time rewards and recognition opportunity across the organisation.


This year safety has been a pivotal people agenda and one of the organisation level strategic projects. Safety governance takes place at the highest levels in the organisation.

Throughout the year, we had theme based employee communication forums & safety awareness campaigns to build and grow a culture of safety in the organisation. New initiatives like Consequence Management Process, conversion of Safety Manual to Hindi and Group term Life Insurance for all off roll employees were rolled out during FY 2015-16.

As a result of all the focused efforts through the year, Aon Hewitt recognised Bharti Infratel for the 2nd time in a row as one of the 'Best Employer' in FY 2015-16.

Summary & Outlook

Telecommunication is at the forefront of Internet revolution and the advent of internet has radically transformed the world of communications, information exchange, entertainment and business. India has the third largest Internet user base in the world out of which more than 50% are mobile-only Internet users and growing fast. The key factors that would lead to this growth are initiatives by the government, availability of Mobile Internet ecosystem at affordable prices and innovative content and service offerings from mobile based services players. Increase in smartphone penetration and increasing demand for Internet based services such as chat, social media, video and music through the mobile medium suggest a paradigm shift in content consumption brferences which in turn, would accelerate the growth in Mobile Internet usage.

Telecom Tower Infrastructure is vital for running the mobile networks. As telecom operators are focusing on increasing market penetration with limited capital expenditure, the telecom tower companies through leasing and sharing have helped operators rollout networks in record time at fraction of cost and thus allowing telecom operators to focus on core marketing activities. The data proliferation is translating into accelerated rollout opportunity for the tower companies in terms of Loading and new tenancies. Bharti Infratel and Indus Towers are the brferred partners of all the major telecom operators and we hope to keep on gaining the market share and cater to all the network requirements of the operators, both in terms of coverage as well as capacity.

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