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Consistent growth in operating metrics

Our view

Overall, consistent performance with steady growth in operating metrics. Revenue was in line, while margin was above estimate led by cost control. It is set to benefit from rising network coverage related capex by Airtel and Vodafone Idea, that would lead to densification of towers. Also, the implempentation of 5G would drive the addition of small cells and would unlock opportunities for it.  We maintain ADD on the stock with revised target price of Rs 310./share.

Result Highlights

* Reported revenue of Rs 68,765 mn( up 1.2% QoQ), led by 2.2% QoQ increase in the number of colocations; while sharing revenue per sharing operator remained flat ( up 0.18% QoQ ) to Rs 42,807.  

* Core rental revenue was up 1% QoQ to Rs 42,536mn

* EBITDA margin increased by 103 bps QoQ to 52.94%, led by control over other expenses and power and fuel cost. The decline in other expenses was primarily due to reversal of bad debt provision during the quarter.

* Energy reimbursement remained negative for 6th consecutive quarter at Rs (282) mn.

* Net debt( with lease liabilities) was down Rs 4.2bn QoQ to Rs 51.8bn.

* Added 2,465 towers in the quarter to reach 183,462 towers as of Q2FY22.

* The number of colocation increasing by 2.2% QoQ to 332,551.

* Average sharing factor increased to 1.81x from 1.80x in Q1FY22.

Valuation

The stock trades at PER of 10.0x on FY24E EPS. The improved stability in the Indian telecom sector post the announcement of reforms by the Union Government would lead to better growth outlook for Indus Towers, while margin would broadly remain stable. We rollover to FY24E estimates and value the stock at 11x on FY24E earnings, arriving at target price of Rs 310/share.

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