Telecom tower valuations not good enough to raise funds?

Telecom companies may be looking to raise funds through equity of their tower arm, but just how good a strategy is it in the present situation?

Not really a very good one, perhaps.

Brokerage Goldman Sachs has reduced valuations of tower companies of Bharti, Idea and Reliance Communications to factor in weakening fundamentals.

“We believe that in the last 6-8 months, tower-co fundamentals have deteriorated due to 1) slower-than-expected network expansion by telcos (both on 2G and 3G); 2) negative impact on businesses of smaller operators led by licenses cancellation,” the brokerage said in a note.

[caption id=“attachment_450098” align=“alignleft” width=“380”] Apart from licence cancellations, a slowdown in capex investments has also resulted in further deterioration in fundamentals and an impact on valuations is expected. Reuters[/caption]

Apart from licence cancellations, a slowdown in capex investments has also resulted in further deterioration in fundamentals and an impact on valuations is expected, it said.

“In addition, contribution to tenancy growth from 3G is also lower than initially expected as 3G rollout by existing tenant is not yielding higher tenancies but higher rentals,” the brokerage said.

In order to factor in the reduced valuations, Goldman Sachs has reduced the price targets of Bharti to Rs 257 from Rs 270, that of Idea to Rs 70 from Rs 72 and RCom to Rs 45 from Rs 48.

A report in The Economic Times today said Bharti Aritelmay file the documents for Bharti Infratel’s Rs 5000 crore IPO this week.

Shares of Bharti Airtel were up 2.2 percent at Rs 260.15 and Idea Cellular 0.8 percent at Rs 79.20. RComm was, however, down 3.4 percent at Rs 48.85.