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High receivables continue to weigh down on Indus Towers

Result Synopsis Indus Towers (INDUSTOW) reported sequentially mixed performance for the quarter. While adjusted revenue growth was broadly inline with estimates; EBITDA margin was below expectation. It reported sequential revenue growth of 15.5% QoQ, led by positive impact from deferred revenue recognition on successful conclusion of certain pending receivables from VIL. Sharing revenue grew by 13.3% QoQ to Rs 13.3% QoQ. There was sequential improvement in EBITDA margin(up 163 bps QoQ), which is still sharply below the normalized EBITDA margin for Indus Towers. Average sharing factor for the quarter was 1.80x vs 1.81x for Q1FY23.

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 5.5% over FY22?24E with average EBIT margin of 29.1%. We maintain our ADD rating on the stock with revised target price of Rs 217/share based on PER of 9x on FY24E. The stock trades at PER of 10.2x/7.8x on FY23E/FY24E EPS.

Result Highlights

? Reported total revenue of Rs 79,666 mn ( up 15.5% QoQ). Core sharing revenue grew by 13.3% QoQ to Rs 47,845 mn. It included around Rs 11bn of deferred revenue recognition during the quarter. ? EBITDA margin increased by 163 bps QoQ to 35.3%, led by positive operating leverage. Other expenses of Rs 19,073 mn included provision for doubtful debts of Rs 17,709 mn.

? Total number of towers grew by 0.8% QoQ to 1,87,926. Total number of colocations grew by 0.5% QoQ to 3,38,128.

? Average sharing factor for the quarter was 1.80x vs 1.81x for Q1FY23.

? Capex for the quarter was Rs 7,937 mn vs Rs 7,601 mn for Q1FY23.

? Net debt( with lease liabilities) increased to 199.8bn from Rs 193.2bn in Q1FY23.

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