Indus Towers hits over 8-month low on growth concerns

Indus' share price has underperformed the market owing to concerns over its key tenant Vodafone Idea's survival

Shares of Indus Towers dipped 6.5 per cent to Rs 207.75, hitting an over eight-month low on the BSE in intra-day trade on Wednesday, in an otherwise strong market, amid growth concerns. The stock was trading at its lowest level since November 20, 2020. Indus’ share price has underperformed the market owing to concerns over its key tenant Vodafone Idea's (VIL) survival.

Indus Towers Limited (formerly Bharti Infratel Limited) is India’s leading provider of passive telecom infrastructure and it deploys, owns and manages telecom towers and communication structures, for various mobile operators. It caters to all wireless telecommunication service providers in India.

According to analysts, lower penalty receipts from VIL in FY23E should taper growth. Furthermore, its situation remains precarious, weighed by ballooning debt and its inability to raise funds and improve its liquidity. This remains the biggest overhang for Indus Towers as VIL is its large client and the tower-sharing business has a limited business case for single-tenancy operations. On the other hand, the threat from RJio’s increased focus in the Tower Infrastructure space may weaken Indus’ positioning, brokerage firm Motilal Oswal Financial Services said in a result update.

In the past one week, the stock has slipped 10 per cent following the announcement of financial results for the first quarter ended June 30, 2021 (Q1FY22). Telecom infrastructure firm Indus Towers posted consolidated profit after tax of Rs 1,415 crore in Q1FY22, against Rs 1,121 crore in the same quarter a year ago.

Consolidated revenue grew 11.7 per cent year-on-year (YoY) at Rs 6,797 crore as compared to Rs 6,086 crore in the year-ago period. Ebitda (earnings before interest, taxes, depreciation, and amortization) came in at Rs 3,517 crore, up 3 per cent quarter-on-quarter (QoQ), with Ebitda margins at 51.7 per cent (down 83 bps QoQ) due to negative energy margins.

The management said the quarter was impacted by a cyclone in 13 circles, which affected business and cost. The 25 per cent increase in trade receivables during the quarter was attributable to timing issues, while the remainder was due to a delay in payment by a customer. Indus has sufficient security cover towards the pending amounts.

"The long-term network upgrade opportunity in the telecom sector towards 5G, fiberization, small cells, and indoor coverage would continue to drive growth in the telecom passive infrastructure industry. Recovery in tenancy adds and a reduction in exits have also brought about stability in earnings," according to an analyst at Motilal Oswal Securities.

The tenancy addition for a third consecutive quarter is decent but sustainability ahead will be important, analysts at ICICI Securities said. "The key risk of VIL’s survival continues to remain and stretched receivables are the first sign of the same. Moreover, while opportunities in adjacent areas (viz. small cells/smart cities/in building solutions/active network sharing) exist, these may fructify only over the long term,” they added.

At 01:40 pm, the stock was trading 4.7 per cent lower at Rs 211.75 on the BSE, as compared to a 0.93 per cent rise in the S&P BSE Sensex. A combined 7.3 million equity shares had changed hands on the counter on the NSE and BSE so far.