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Add Indus Towers Ltd For Target Rs.180 - Yes Securities
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Delay in collection of receivables continue to weigh down on Indus Towers
Result Synopsis
Result Synopsis Indus Towers (INDUSTOW) reported sequentially weak performance for the quarter. While adjusted revenue growth was broadly inline with estimates; EBITDA margin was below expectation. It reported decline in revenue by 15.1% QoQ, as Q2FY23 revenue included Rs 11bn of deferred revenue. There was sequential decline in EBITDA margin(down 1777 bps QoQ) led by provision on doubtful debts of Rs 22bn for the quarter. Average sharing factor for the quarter was flat at 1.80x
The precarious financial condition of VIL continues to weigh down on Indus Towers. We expect return of stability in telecom sector on account of reforms announced by the Union government to drive tower/ colocation addition led by demand for increase in 4G coverage/capacity. Also, the implementation of 5G would drive the addition of small cells and would unlock opportunities for it. However, it needs to be seen how the 5G related opportunities shape up in coming quarters. The dividend yield of ~7%?8% offers protection from downside. We estimate revenue CAGR of 2.0% over FY22?24E with average EBIT margin of 22.0%. We maintain our ADD rating on the stock with revised target price of Rs 180/share based on PER of 9x on FY24E. The stock trades at PER of 16.1x/7.9x on FY23E/FY24E EPS.
Result Highlights
* Adjusted revenue (excluding deferred revenue of Q2FY23) declined by 1.5% QoQ to Rs 67,650 mn. Continues to face delay in collection of receivables from VIL.
* EBITDA margin decreased by 1777 bps QoQ to 17.5%, led by higher other expenses. Other expenses of Rs 24,178 mn included provision for doubtful debts of Rs 22,701 mn.
* Total number of towers grew by 0.8% QoQ to 1,89,392. Total number of colocations grew by 0.4% QoQ to 3,39,435.
* Average sharing factor for the quarter remain unchanged at 1.8x.
* Capex for the quarter was Rs 10,369 mn vs Rs 7,937 mn for Q2FY23. ? Net debt (with lease liabilities) decreased to 194.7bn from Rs 199.8bn in Q2FY23.
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