IGI Logo

Indus Towers’ (Indus) stock rallied ~10% last week. This was led by a combination of (i) impressive tower and tenancy additions by Indus in Q2; and (ii) Vodafone Idea’s mgmt. emphasizing that equity funding is likely to be closed in this quarter. However, provisioning against receivables from Vi continues for Indus, as there was a provision of doubtful debt of Rs1,335mn in Q2, which impacted EBITDA. We believe Indus is a better proxy to play any news around a fundraise by Vi, as Vi is one of the key clients of Indus. Vi’s fundraise will alleviate Indus’s concerns on: i) high receivables from Vi and ii) sustainability of long-term demand from Vi. Moreover, Vi has huge pending dues payable to the govt. from FY27, which exposes Vi’s investors to equitydilution risk, if dues are converted to equity. Indus has no such risk.

Indus Towers: Financial Snapshot (Consolidated)

We see reduced cash constraint for Vi till H1FY26 on promoter’s fund infusion

At Q2FY24-end, Indus’s trade receivables were Rs61.9bn, mostly related to Vi. Besides this, Indus has already provisioned ~Rs56bn in the last six quarters. We believe the promoter’s Rs20bn financial support, when received, will reduce cash constraint for Vi till H1FY26, as bank debt obligation for Vi reduces post-Q4FY24. Vi’s bank debt at the end of Q2FY24 stood at Rs79bn and its bank debt will be ~Rs37bn at the end of Q4FY24. From Q1FY25, the company’s debt servicing burden is expected to reduce, i.e., Rs5bn in Q1FY25 and Rs9bn in Q2FY25, as per our estimates. We believe Vi’s internal accruals will be sufficient to make essential payments till H1FY26, before the moratorium ends (exhibit 9). During this period, we assume capex at Q1FY24 levels (Rs4.5bn per quarter or Rs18bn per year, with no 5G rollout). We also assume refinancing of Rs15bn of debt in FY24E to meet cash shortfall (in case there is no external equity or debt funding). We assume this debt to be repaid in FY25. We have excluded payments related to working capital from our analysis. Any surplus cash generated or funds from investors can be used for repayment for vendors (including Indus) and for 5G capex.

Outlook remains positive for Indus

Demand for new towers from rural expansion and densification in urban areas remains robust. Indus is witnessing good demand from one of its key customers (Bharti Airtel) for rural expansion and densification in urban areas. Further, 5G will require tower densification once the 5G rollout is largely complete, which will add to demand. Mgmt. expects the demand movement to remain healthy for the next two quarters at least, led by rural expansion, densification of urban areas and 5G rollouts. Order book is strong, as per the company. However, we see challenges for Indus, with respect to outstanding receivables from Vi, if Vi fails to raise funds or if there is no tariff hike. We see revenue growing at a muted 4% CAGR over FY23-26 amid limited capex by Vi. Indus also faces competition from other players like Summit Digitel. Our DCF-based TP stands at Rs195/share. We maintain our HOLD rating on the stock.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354