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VIL stress begins to show with stretched receivables…

About the stock: Indus Towers was formed by the merger of Bharti Infratel and Indus Towers. This combined strength makes Indus one of the largest telecom tower companies in the world.

* It has 180,997 towers and 325,355 co-locations (as on Q1FY22) and a nationwide presence covering all 22 telecom circles.

Q1FY22 Results: Indus reported muted Q1FY22 results.

* The company reported net addition of 2917 co-locations (~3123 on gross basis). Revenues came in at | 6797 crore, up 4.7% QoQ. Rental revenues were at | 4211 crore, up 1.7% QoQ while energy revenues were at | 2586 crore, up 10% QoQ, due to higher diesel prices

* EBITDA came in at | 3517 crore, up 3% QoQ, with EBITDA margins at 51.7% (down 83 bps QoQ) due to negative energy margins.

Key triggers for future price performance:

* In the medium term, opportunities in adjacent areas (viz. small cells/smart cities/in building solutions/active network sharing) will drive growth

* Status of VIL’s survival, as it is a key tenant. Initial signs of stress has begun to show with stretched debtors’ day.

* Overall tenancy demand from 5G transition.

Alternate Stock Idea: Apart from Indus Towers, in our telecom coverage we like Bharti Airtel

* A play on favourable industry structure - a good enough kicker for eventual hike in tariff as well as superior digital play in the medium to long term

* BUY with target price of | 690

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