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Indus Towers

Operating margin adversely impacted due to one off provision for doubtful debts

Our view and valuation

Overall, it reported subdued performance for the quarter and except for one off provisions, the financial performance was broadly inline. The one off provision of Rs 12.3bn impacted the EBITDA margin for the quarter.  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. For renegotiation on rental on colocations, it has completed the negotiation with its customers. We estimate consolidated revenue CAGR of 2.4% over FY22? FY24E, with average EBIT margin of 31.3%. We maintain ADD Rating on the stock with revised target price of Rs 239 per share, valuing it at 9.5x on FY24E EPS. Trades at 8.2x on FY24E EPS.

Result Highlights

* Reported revenue of Rs68.9bn( down 3.1% QoQ, up 1.5% YoY). The sequential decline was on account of one time provision reversal of Rs 5,473mn in Q4FY22. 

*  The muted YoY increase was due to revenue of Rs1,824 mn from exit charges in Q1FY22 compared to exit charges revenue of Rs 287 mn in Q1FY23.

*Total  sharing revenue declined by 11% QoQ to Rs 42,225mn

* It reported provision for doubtful debts of Rs 12,326mn as part of its other expenses and consequently, reported EBITDA decreased by 42.9% QoQ to Rs 23,222mn. Adjusting for it, the adjusted EBITDA margin declined by 510 bps QoQ to 52.1%, on lower sequential revenue.

* The number of towers grew by 0.5% QoQ to 186,474 towers.

* The number of colocations grew by 0.18% QoQ to 336,382.  

* While, the average sharing factor was flat QoQ at 1.81x

* It added 1021 leaner towers in the quarter.

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