Q4FY23 Review: Indus Towers: Q4 offers hope even as Vi walks a tightrope

28 Apr 2023 , 10:32 AM

After reporting a near-normal Q4, Indus’ management stated that it continues to be in active discussions with Vi, to expedite the collection of past dues (est. Rs55-60bn). However, the parties are yet to agree on a payment plan. Indus mentioned that the Board will take a call on dividend payout after WC position improves on a sustained basis. Management also stated that the return on capital of a single-tenancy tower is in high-single digit to low-double digit (our estimate is that it is closer to the lower end of this range). While Vi nearly made current payments in full to Indus during Q4, the telco’s financial position remains tight as seen in delayed licence fee payments to the government.

Incrementally positive on Vi; dividend payout contingent on FCF improvement: 

Management mentioned that notwithstanding active discussions with Vi, there is no fresh payment plan yet (Vi found it difficult to stick to the earlier payment plan due to delay in fund raising). Indus reiterated that dividend payout will be linked to FCF. Though Indus generated Rs14bn FCF in FY23, it did not announce a dividend along with Q4 results. The company will take a call on dividend payout after the WC situation improves in a sustained manner. 

Other takeaways from earnings call: 

1) While currently, most 5G rollouts are driven by loading, Indus expects standalone 5G sites to be rolled out over time. 5G loading revenue results in 5-10% increase in ARPT. 2) With a large customer (Bharti) rolling out network in rural areas, nearterm tower demand should remain strong. 3) Single-tenancy towers may not initially cover the cost of capital, but return ratio should rise over time through factors like loading.

Maintain estimates; TP Rs148: 

Analysts at IIFL Capital Services largely maintain estimates for FY24/25. This factors in annual doubtful debt provision run-rate at Rs16bn in FY24 and FY25 (vs Rs54bn in FY23), considering lack of clarity around Vi’s fund raising.