Indus Towers hits 52-week low in firm market; slips 10% in one month

Analysts at BNP Paribas believe an improvement in long-term revenue visibility from Vodafone Idea can result in further increase in earnings estimates as well as valuation multiple of Indus Towers

Shares of Indus Towers slipped 3 per cent to hit a 52-week low of Rs 177.10 on the BSE in Tuesday’s firm intra-day trade on earning concerns. The stock of the telecom infrastructure company has fallen below its previous low of Rs 181.15 touched on May 16, 2022. In comparison, the S&P BSE Sensex was up nearly 1 per cent at 60,4890 at 10:01 AM.

The board of directors of Indus Towers is scheduled to meet on January 24, 2023 to consider and approve the audited financial results for the third quarter (Q3) and nine months ended on December 31, 2022.

In the past one month, the stock has declined 10 per cent as compared to a 1.4 per cent fall in the S&P BSE Sensex. Further, in the past one year, it has tanked 35 per cent as against a 1.4 per cent decline in the benchmark index.

Indus Towers is India’s leading provider of passive telecom infrastructure and it deploys, owns and manages telecom towers and communication structures for various mobile operators.

The company’s portfolio of over 187,000 telecom towers makes it one of the largest tower infrastructure providers in the country with presence in all 22 telecom circles. Indus Towers caters to all wireless telecommunication service providers in India.

For the second quarter (July to September) of FY23, Indus Towers saw a 44 per cent year-on-year (YoY) drop in net profit to Rs 872 crore. Revenue for the period grew 16 per cent on a YoY basis to Rs 7,967 crore but profit declined due to challenges in the recovery of dues from Vodafone Idea (VIL).

From an operational performance perspective, Indus Towers witnessed a healthy growth in addition of macro and leaner towers. During the quarter, the company registered a net addition of 1,452 macro towers and 1,746 corresponding co-locations.

Indus Towers had a difficult year with receivables from VIL, its second largest tenant, increasing. Indus Towers has already made a provision of Rs 3,000 crore receivables from VIL. This resulted in Indus Towers lowering its dividend payout.

Management said that VIL has presented a payment plan in which the company has agreed to clear its past dues by first half of 2023. However, it believes VIL’s ability to service its liabilities will depend on its ability to raise funds. The company has not yet succeeded in raising funds, said BNP Paribas in a telecom sector report.

The brokerage has a ‘hold’ rating on Indus Towers as it believes improvement in long term revenue visibility from VIL can result in further increase in earnings estimates as well as valuation multiple and is an upside risk to estimates. Further consolidation of the Indian telecom industry is a downside risk for Indus.

For Indus Towers, analysts at ICICI Securities bake in tower and net tenancy addition of 1500 and 2600, respectively in Q3FY23, with average sharing factor likely to remain stable at 1.80x. Tenancy addition will largely be led by Airtel 5G rollout.

“We expect rental revenues at Rs 4,316 crore, down 9.8 per cent QoQ but up 1.9 per cent on adjusted basis as Q2FY23 had one-time provision reversal benefit. Energy revenues are likely to be down 14.3 per cent QoQ at Rs 2,726 crore given the one-time benefit in Q2. Overall margins are expected at 51.4 per cent, up 70 QoQ, on adjusted basis,” they said in a Q3FY23 preview report.