Q3FY24 Review: Indus Towers: Managing receipts from Vi deftly

25 Jan 2024 , 02:44 PM

Indus Towers reported a healthy quarter with ~3% QoQ growth in rental revenue and adjusted Ebitda, led by Bharti’s rural 4G rollouts. While collection of Q3 receivables from Vi was along expected lines, it also surprisingly managed to realise Rs3bn overdue. Having said that, analysts of IIFL Capital Services estimate that 9M FCF for Indus was –Rs6.5bn, due to elevated capex. Analysts of IIFL Capital Services expect FY24 FCF to be minuscule, which may result in nil dividend payout for the year. Media reports mention that Vi has sought for more time to make licence fee payments to the government. With Vi struggling to raise funds, analysts of IIFL Capital Services believe that the company is not completely out of the woods yet. Analysts of IIFL Capital Services lower their estimates for the provision for doubtful debt (PDD), which drives 2%/5%/5% Ebitda upgrade for FY24/25/26. Their TP rises from Rs197 to Rs208. Maintain REDUCE. 

In-line Q3 with minimal bad debt provisions: 

Indus Towers’ Q3 Ebitda grew 4.7% QoQ to Rs35.8bn. The company booked Rs641mn provision for PDD. After removing PDD from both quarters, adjusted Ebitda grew ~3% QoQ. Brisk tower additions, driven by higher share from Bharti’s rapid rural 4G rollout, was another positive. PAT increased ~19% to Rs15.4bn; due to sharp jump in Other income. With Vi making payments on time, WC swing was positive. However, Q3 FCF was just +Rs4.6bn due to higher capex. Indus has managed to realise its receivables from Vi, even as the latter has delayed licence fee payments to the government. 

Healthy management commentary: 

Key takeaways from the earnings call: 1) Bharti’s 4G rural rollout helped drive record tower additions during the quarter; this should continue in the near future. 2) Indus not only collected receivables for Q3 from Vi, but also Rs3bn past overdue. 3) FY23 saw one-third of the tower portfolio seeing renewals. 50-60% will be up for renewal in the forthcoming years. 4) Board will evaluate the possibility of dividend payout along with Q4 results. 5) Energy spread marginally worsened due to one-off items, but for which it would have been flat QoQ. 

Raising Ebitda estimates by 2%/5%/5% for FY24/25/26: 

Analysts of IIFL Capital Services raise their tenancy assumptions, while pruning our PDD estimates for FY25 and FY26, from Rs16bn each to Rs10bn. Their Rs208 TP is based on 75:25 probability of a three/two player market.