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Indus Towers' Q4 satisfactory, but fortunes hinge on Vodafone Idea’s survival

Indus Towers’ revenues for the last quarter came in slightly below many analysts’ estimates. (Photo: Mint)Premium
Indus Towers’ revenues for the last quarter came in slightly below many analysts’ estimates. (Photo: Mint)

  • Gross additions continue to slowly inch up but remain range bound, and should only recover once VIL embarks on coverage expansion. As such, concerns around VIL’s long-term prospects and financial health remain an overhang for shares of Indus Towers

MUMBAI: The March quarter (Q4FY21) results of Indus Towers Ltd, formerly Bharti Infratel Ltd, results were not impressive, but they were not too bad either. The company offers tower and related infrastructure sharing services to telecom service providers.

Indus Towers’ revenues for the last quarter came in slightly below many analysts’ estimates. Based on consolidated proforma financials, reported rental revenues increased 5.7% year-on-year. Overall revenues, however, grew at a slower rate of 2.9% year-on-year due to to 1.6% drop in energy reimbursements.

During the March quarter, the company added 3,715 towers sequentially, taking the total to 179,225. While tower additions are encouraging, tenancy ratio dropped to 1.81 times last quarter versus 1.82 times in Q3FY21 and 1.85 times in Q4FY20. Analysts said if the declining trend in tenancy ratio continues, then profit margins are likely to be adversely impacted.

For the March quarter, Indus Towers’ reported consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) margin was flattish sequentially. Although, Ebitda margin expanded 730 basis points year-on-year to 52.6%. One basis point is one-hundredth of a percentage point. Energy spreads (energy reimbursements less costs) were in the negative territory, albeit losses declined compared to the December quarter.

Commenting on the March quarter, Emkay Global Financial Services Ltd’s analysts said, “In our view, positives such as dip in receivables for the second-consecutive quarter, highest-ever tower roll-out yet again, positive tenancy additions and bottom-line beat were offset in part by negatives like rise in gross exit tenancies, sequential drop in operating FCF and negative energy margins." FCF is free cash flow.

Meanwhile, Indus Towers’ fate is closely tied to the health of its large client, Vodafone Idea Ltd (VIL). As analysts from Ambit Capital Pvt. Ltd said in a note on 23 April, “The company’s fate depends on VIL’s survival." The analysts added, “Gross additions continue to slowly inch up but remain range bound, and should only recover once VIL embarks on coverage expansion."

As such, concerns around VIL’s long-term prospects and financial health remain an overhang for shares of Indus Towers.

Emkay’s analysts point out, "We continue to highlight that VIL’s fund raise or any respite to telcos regarding the adjusted gross revenues penalty will be crucial for a re-rating in the stock."

Some analysts also worry about the impact of Reliance Jio’s increased focus on tower infrastructure. So far this calendar year, shares of Indus Towers have risen around 8%.


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