Given that I had publicly spoken about this, it’s only fair to disclose that I’ve closed this position this week. Some thoughts —>
1/ The initial thesis was based on a strong player emerging from a crisis. Both operators and tower cos had consolidated. Infratel had and still has the balance sheet to withstand a few challenging years
2/ Networks are choked and still are. Another part of the bet was that tariffs would rise over time giving telcos the much needed cash to deploy networks, notwithstanding their overleveraged balance sheets
3/ I wasn’t too bothered about fibre replacing towers because even the most developed markets use both mediums. Plus given the costs of fibre rollout it wouldn’t be a top priority atleast for a few years
4/ The tower model however works best when it’s shared. Single anchor tenancies are expensive. It’s the reason operators demerged their towers. They are doing the same with fibre. It doesn’t make sense duplicating infra
5/ While the solvency of one of the operators was a risk I was well aware of (it still is solvent now) the cash situation has become precarious with the SC ruling. The promoters ability to fund this will be key, and will not be an easy one
6/ The uncertainty and eventual outcome at this operator are even more difficult to judge now. Will it scale down to become a regional player to survive? Will both parents throw in the towel? Will it merge with its competition? ...
7/ ...Or will one parent magically cough up the cash? It also seems unlikely another loaded overseas strategic will step into the foreign partners shoes after the mess around back dating regulations, tax issues, penalties, etc and seeing the graveyard of other strategics
8/ So two key takeaways:
A. It’s extremely difficult to call a fundamental bottom even if you’ve tracked the space for years. Multiple examples of cheap becoming cheaper. Many examples of valuations going several notches below replacement cost
A. It’s extremely difficult to call a fundamental bottom even if you’ve tracked the space for years. Multiple examples of cheap becoming cheaper. Many examples of valuations going several notches below replacement cost
9/ B. Positions, and contra ideas in particular, are best scaled as triggers play out. This is a mistake I keep making despite being well aware of it. Have improved somewhat over the years, but it still gets the better of me 🤦🏻♂️
10/ Will continue watching this drama play out. There may be a better play at a later time. The trend of Indians addicted to devices guzzling data (9-10GB a month at last count) is not going to change anytime soon /End
