Indus Towers shares in buzz as analysts remained divided after Q4 results, stock jumps 13% in 2 days

Brokerage firms are divided on Indus Towers after the company announced its results for the period ended on March 31, 2023. However, the stock has been on a roll since the declaration of its results as the stock rallied 13 per cent in the last two sessions, including a 6 per cent rise on Friday.

Indus Towers reported a 23 per cent fall in profit for the quarter that ended March 2023 to Rs 1,399 crore, against Rs 1,828 crore in the same quarter in the previous financial year. Revenues for the period declined by 5 per cent in the period to Rs 6,752 crore from Rs 7,116 crore.

Adding to the optimism of the investors, Indus Towers said on Thursday it received a 'significant part' of the installment-based payments from Vodafone Idea (Vi) for the January-March period. The senior management of the company informed regarding this in a post-results investor call.

It stressed that it received no new proposal for an updated payment plan from Vi, and that the company would keep its eyes on previous dues. It acknowledged that the situation remains dynamic. Indus Towers provisions for doubtful receivables declined in the March 2023 quarter.

Shares of Indus Towers surged about 13 per cent in the last two sessions as the stock moved to Rs 155.7 on Friday from Rs 138.2 on Wednesday. The stock gained 7 per cent during Friday's session from its close at Rs 144.75 on Thursday.

The government’s reform in the telecom sector has improved VI’s survival visibility, despite near-term challenges. Tariff hikes and security relief packages show a positive environment for the telecom sector. Company’s collection from VI was close to 90-100 per cent of current billings during the quarter, which indicates gradual improvement in the situation, said Reliance Securities.

"In view of better business prospects, likely increase in infra spend by telecom operators, big opportunity from 5G roll out and attractive valuation post sharp stock price correction, we reiterate our 'buy' on Indus Towers and maintain the target price at Rs175, valuing the stock at an unrevised P/E multiple of 8.5x FY25E earnings," it said.

"Overall, mixed performance for the quarter with sequential improvement in the margin a positive sign. The management commentary in addition to 5G-related towers/ BTS would be keenly watched. We currently have an 'add' rating on the stock. trades at 6.5x on FY25E," said Yes Securities, whose detailed report is yet to be out.

However, not all analysts are positive about the stock. Some of them have a neutral to negative view on the counter as well after a mixed performance and future prospects of generating free cash flows. Some of the analysts have trimmed their targets for the stock.

Indus Towers’ Q4FY23 performance was good on two counts – tenancy addition accelerated with a net add of 3,396 despite 512 exits; and no provisioning, which had marred EBITDA in the previous three quarters We believe tenancy addition is unlikely to sustain as Bharti is close to completing its rural 4G rollout; 5G rollout over the next 12-18 months will largely come as loading, said ICICI Securities.

We are watching the working capital situation and cash flow conversion for Indus; it has normalized in Q4FY23 as VIL has made the entire payment for the quarter. We have cut our EPS estimate for FY24E and FY25E by 0.3-1 per cent, it said while maintaining a 'hold' tag for the stock with a trimmed target price of Rs 143 which was Rs 158 earlier.

The company has not declared any dividend in FY23, owing to weak collection from VIL, leading to a decrease in FCF, said Motilal Oswal.  "The absence of dividend in FY23 v/s 5% in FY22 and declining FCF yield to 3.5 per cent dilute the recurring annuity return investment thesis. We reiterate our Neutral rating on the stock," it added with a target price of Rs 160.

"Indus reported a better-than-anticipated 4Q primarily on better collections from Vi. Operational performance was largely in line with estimates, as higher tower adds were offset by lower exit revenue and weaker energy spreads. FY2023 reported EBITDA declined sharply 35 per cent yoy on bad debt provisioning for outstanding dues, said Kotak Institutional Equities.

"Indus skipped dividend payout in FY2023 and without expedited fundraise or sharp tariff hike, we believe Vi’s ability to sustainably make full and timely payouts would remain constrained and continue to weigh on Indus’ dividend payouts," Kotak added while retaining its 'reduce' rating with an unchanged fair value at Rs 140 apiece.


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