Why will Indus Towers shares be in focus tomorrow after GoI's stake raise in Vodafone Idea?

Shares of Indus Towers have risen for the last five trading sessions, and are likely to be in the limelight again on Tuesday, April 22, amid hopes that a stake increase by the Government of India (GoI) in beleaguered telecom player Vodafone Idea will likely help the company recover ₹500 crore in dues and also declare a dividend to reward its shareholders.

Indus Tower share price settled 3.07% higher on Monday, April 21, at ₹410 apiece after Vodafone Idea said today that GoI has increased its stake from 22.60% to 48.99% by converting a portion of the company’s spectrum payment dues into equity shares valued at ₹36,950 crore.

With today's rise, Indus Tower stock has risen 10% in the past five trading sessions.

What does Vi stake purchase by GoI mean for Indus Towers?

Analysts believe the latest move of stake increase by the government will provide cashflow to Vodafone Idea and help clear past dues, which bodes well for Indus Towers. Further, the survivability of Vodafone Idea is another positive for Indus Towers as it generates 35-40% of its revenue from the cash-strapped telco.

“GoI’s recent move provides cashflow support to Vi and could also aid in the completion of Vi’s long-pending debt raise. We believe more comfort on Vi’s survival and improved visibility on the completion of Vi’s capex plans could be materially near-term positive for Indus Towers,” said Motilal Oswal Financial Services (MOSL) in a report earlier this month.

According to analysts at ICICI Securities, there is a higher likelihood of Vodafone Idea paying off the remaining ₹500 crore it owes Indus Towers.

"We expect Vi receivables of ₹500 crore to be cleared in Q4 FY25 and also expect Indus to announce dividends along with its Q4 results," BofA Securities said in a research note, according to a report in The Economic Times. Indus Towers will report its fourth-quarter results on April 30.

Citi, in a note in early April, had started that Indus Towers' rental revenue from VI has been a significant risk factor. However, the government-backed restructuring could enhance short-term cash flows and alleviate default concerns, it said. The brokerage remains optimistic about Indus Towers' long-term growth, supported by rising demand for telecom infrastructure and the expansion of 5G networks.

Should you buy Indus Tower shares?

After consolidating for a long time, Indus Tower shares have staged a breakout from the trading range, highlighting the possibility of rising further, according to tech charts.

Milan Vaishnav, CMT, MSTA, Founder & Technical Analyst at EquityResearch.asia, said Indus Tower peaked near ₹460 levels in September last year. “In the correction that followed, the stock lost nearly a third of its value while slipping below all key moving averages. It formed its low near ₹320 in November last year; since then, over the past few months, the stock has remained in a trading range, leading to a rectangle pattern formation on the charts,” Vaishnav added.

The recent price action over the past three sessions has seen Indus Tower stock breaking out of this trading range, he said, adding that it has also taken out the 200-DMA presently placed at ₹370.

“While a fresh entry can be made at this level, investors who are already invested in the stock should remain invested as the stock may move higher towards its previous lows. The support level has been dragged higher and the level of ₹370 remains a major support for the stock,” Vaishnav opined.

However, brokerages ICICI Securities and JM Financial have 'reduce' and 'hold' recommendations on the stock, while MOSL has a 'neutral' rating.

MOSL said it retained a Neutral rating on Indus as it believes a sustained re-rating remains contingent on Vi’s long-term revival, which in turn is dependent on its operational improvements. "We would use any bounce in Indus’ stock price to reduce exposure," said the brokerage firm.

Disclaimer: This story is for educational purposes only. 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.