Acquisition of fees of Rs 4,200 crore from Vodafone Idea set to help the company’s balance sheet; analysts are optimistic
Recently, telecom major Vodafone Idea (Vi) divested Rs 1,910 crore from its old stake in Indus Towers using cash it recently issued fresh equity in the form of preferred stock. Additionally, leading tower company Indus Towers has also collected a provision of Rs 2,328 crore in VI during FY25 against a total provision of Rs 5,386 crore as of Mar’24.
And this disbursement approval will work well on Indus Towers’ balance sheet, SBI Securities said in its report dated January 13, 2025.
Apart from that the brokerage has selected Indus Towers as its Pick of the Week for a period of 1 year, with a price target of Rs 376, which means about 7 percent gains from last.
In addition, SBI Securities listed four other reasons for its ‘buy’ call on the stock. They are as follows:
A world leader in providing telecom infrastructure: This company is among the largest telecom tower companies that work in deploying the physical infrastructure required to install the operational equipment – base transceiver station, transmission link and microwave antenna.
Sticky client base: The company in the oligopoly telecom market provides its services to all major telecoms namely Bharti Airtel, Reliance Jio, Vodafone Idea and other players. These clients to have access to uninterrupted services are naturally attached and thus provide decent income visibility, added the vendor report.
Supportive government policy for the sector: In Sept’21, the government approved telecom reforms where non-telecom revenue is excluded from the AGR calculation as expected. This will help reduce the license fee by about 80 percent, the brokerage said.
For future spectrum auctions, no BG (Bank Guarantee) is required. Future spectrum auction period extended to 30 years from 20; while surrender is allowed after 10 years, the report said.
Now recently on Nov’24, the government approved a proposal to withdraw the bank guarantees (BG) that telecom operators had to provide for the purchase of spectrum till 2022. The decision is expected to provide major relief to telecom giants, who collectively owe the government Rs 30,000 crore in BGs.
Financial Development; Attractive rating: In the previous financial year 2023-24, the company reported a 50 percent jump in EBITDA to Rs 14,557 crore while net profit increased 3x to Rs 6,036 crore. During 1HFY25, the group’s premiums increased profit growth by 57 percent to Rs 4,149.4 crore despite revenue growth being muted by only 4 percent YoY growth.
At the current price, the stock is available at an attractive valuation, trading at 11.84x/11.81x of its FY25E/FY26E adj. salaries respectively.
Key risks: Indus Towers depends on few customers for major source of revenue. In addition, the tower company is subject to strict regulatory compliance and there is a high capex requirement for tower rollout.
Indus Towers share price
The stock in the past one year has risen 63 percent in share price, while its year-to-date return is 3 percent.
