Fundamentals Analysis: GTL Infrastructure Ltd

About the company
GTL Infrastructure Ltd ("GTL Infra") offers passive infrastructure to wireless telecom operators. In more colloquial wordings, it owns those mobile "towers". It is now the world's largest independent tower company, and aims to have a portfolio of 50,000 towers across India. The company is part of the Global Group and is a pioneer in its field. It has a massive network of towers, supporting the large passive infrastructure that is needed across the country for wireless telecom operations.

Sector Outlook
The telecom sector is maturing now, but with new entrants and the growing population- it remains an exciting place. The sector (telecom/infrastructure) where GTL Infra lies in is the backend of the telecom sector. The sector is particularly very important as it supports the basis of the future of telecommunications- wireless telecom. New technologies and innovations are the only ways to outperformance in this sector. "The more, the merrier" - as more and more telecom operators come to India, the telecom equipment/infrastructure sector will see growth. However, as the front end margins would crash as a result of negative competition, this might have an impact on the sector under consideration. This, however, remains to be seen- and is just a conjecture.

GTL Infra, per se
GTL Infra has been growing rapidly over the past quarters, with Quarter-on-Quarter growth in revenues clocking 10% plus. It offers its infrastructure to leading mobile operators in the country. It has built around 9400 towers in the country, and the tower portfolio is seen to expand- adding to the revenues. It is also working on in-building-solutions, and expanding its services portfolio in this direction.

Financials
The revenues are growing at a nice rate, however, due to the high capital expenditure incurred in setting up the business and allied activities, the company has high debt. This is reflected in the high interest expenditure in its accounts, and this impacts the net profit negatively. The operating profit margins are high, very high indeed- more than 70%. The net profit margins take a beating due to the high debt costs.

Valuation and Historic Price
It went for a rights issue in 2007, at the interesting ratio of 1:1, at par face value. The stock traded at an all time high of 106.5 on the BSE in 2008. Its all time low is Rs. 27.6 and its LTP is Rs. 44.7. At Rs. 44.7, the P/E notwithstanding, buying the stock implies betting bigtime on the prospects of its tower portfolio- which is rational too. This stock is and has been expensive, considering the price at which it is traded vis-a-vis the EPS (P/E). The total share capital is 956 cr of Rs. 10 shares. The EPS will take time to climb up, and so will the share price.

StocksCenter Verdict
The stock is expensively priced at the moment. If one is bullish on the telecom infrastructure sector, and one does have reasons to be so, GTL Infra is a good candidate for long term investing. Again, the EPS will take time to climb up, and a killing can be made in the long term- when, hopefully, its balance sheet recovers.