IGI Logo

Healthy tenancy addition…

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 183462 towers and 332551 co-locations (as on Q2FY22) and a nationwide presence covering all 22 telecom circles.

Q2FY22 Results: Indus reported better-than-expected Q2FY22 results.

* The company reported net addition of 3566 co-locations (on a like to like basis) vs. 2917 co-location addition in Q1. Revenues came in at | 6877 crore, up 1.2% QoQ with core rental revenues at | 4254 crore, up 1% QoQ

* EBITDA came in at | 3623 crore, up 3% QoQ, with margins at 52.7% (up 95 bps QoQ) driven by lower other expenses due to provision writeback. PAT was at | 1559 crore (up 10% QoQ), largely owing to lower other expenses and higher other income

What should investors do? Indus’ share price has delivered merely ~22% over the past five years owing to concerns over its key tenant (VIL) survival.

* Despite improved odds of Vodafone Idea survival, lack of clarity on long term tenancy growth outlook remain. We maintain HOLD on the stock.

Target Price and Valuation: We value Indus at | 310 i.e. 7x FY23E EV/EBITDA.

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

* Normalisation of VIL stress, which is stretching working capital

* Overall tenancy demand from 5G transition

Alternate Stock Idea: Besides Indus Towers, in our telecom coverage we like Tata Communication.

* A play on cash flow generation consistency and growth levers like cloud, edge & security, IoT

* BUY with target price of | 1725

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer