Vodafone Idea FPO: Indus Towers likely to benefit from telco’s fundraising, network expansion

Vodafone Idea FPO: Indus Towers, India’s largest mobile tower installation company, is likely to benefit if Vodafone Idea completes its fundraising worth ₹45,000 crore and its network expansion, analysts said.

The Follow-on Public Offer (FPO) worth ₹18,000 crore of cash-strapped Vodafone Idea opened for subscription on April 18. The telecom operator is said to use the net proceeds from the new issue to finance the acquisition of equipment for the expansion of its network infrastructure, amounting to ₹12,750 crore. This includes the establishment of new 4G sites, the augmentation of capacity at both existing and new 4G sites; and the establishment of new 5G sites.

Vodafone Idea FPO proceeds will also be used for payment of certain deferred payments for spectrum to the DoT. Vodafone Idea FPO subscription status was 26% on the first day.

Also Read: Vodafone Idea FPO day 2: GMP, subscription status to review. Should you subscribe to this ₹18,000 crore issue?

Analysts believe that ₹20,000 crore equity infusion, if successful, would pave the way for debt raising which is estimated to be worth ₹25,000 crore. 

This would enable Vodafone Idea to step up capex and narrow the gap on coverage and capacity versus peers, IIFL Securities said. The brokerage firm estimates ₹55,000 crore capex over FY25-27 which should help stem subscriber churn.

The successful fundraising of Vodafone Idea will remove the overhang on a key client for Indus Tower.

“We estimate Vi to raise its mobile broadband location count from the current ~170,000 to 250,000 over the next two years. We expect Indus to garner ~80% of the same, which should boost its tenancy ratio to ~1.95x from the current 1.7x,” IIFL Securities said.

Also Read: Vodafone Idea FPO: 10 key things to know about ₹18,000-crore issue

It also believes Indus would benefit from higher loading revenue and the addition of a second tenant on many of its towers. The improvement in the tenancy ratio would also improve the unit economics of Indus’ tower portfolio. 

“With Vodafone Idea’s financials improving, we no longer build in ₹10,00 crore provision for doubtful debts per annum for Indus. Consequently, our FY25 and FY26 Ebitda see 10% and 28% upgrades. With improvement in working capital as well, PAT sees 16% and 44% upgrade,” said IIFL Securities in a report.

IIFL Securities upgraded its rating on Indus Towers shares to ‘Buy’ and raised Indus Towers share price target price of ₹379 per share as it would benefit from Vodafone Idea’s improved financial position and subsequent rollouts, as well as the potential reinstatement of dividend.

Its earlier TP derivation was based on a 75:25 probability of a three-player /two-player market. It now changes to a 100% probability of a three-player market. The raised target price for Indus Towers shares is even before factoring in any potential realisation of overdue receivables of over ₹6,000 crore from Vodafone Idea.

Also Read: Vodafone Idea FPO opens. Should you bid? Here's what GMP, experts say about the ₹18,000-crore issue

IIFL Securities also expects Indus Towers to reinstate dividends from FY25 as it again starts generating healthy free cash flows (FCF). Its dividend payout policy is 100% of FCF. It estimates ₹4,000 crore and ₹6,500 crore FCF generation in FY25 and FY26. It believes Indus Towers stock is attractive at 4.5% and 7.2% FY25 and FY26 dividend yield.

Indus Towers share price rallied over 4% to hit a 52-week high of ₹359.60 apiece on the BSE. Indus Towers shares have jumped 50% in the last one month and more than 75% year-to-date (YTD). In the past one year, Indus Towers shares have spiked over 155%.

At 11:40 am, Indus Towers shares were trading 1.54% higher at ₹349.90 apiece, while Vodafone Idea shares were trading 0.30% lower at ₹13.16 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.