Indus Towers’ increasing receivables a risk: Analysts

Indus Towers has suffered around a 28% sequential jump in its trade receivables to Rs 7,351 crore in the December quarter due to delayed collections from loss-making Vodafone Idea (Vi), a scenario that poses business risks for the leading telecom tower company, say analysts.

They added that resolution of Indus’ trade receivables problem hinges on closure of cash-strapped Vi’s long pending fundraise. Trade receivables include sums owed to Indus by key telco customers such as Vi for availing of the tower company’s infrastructure services on credit.

“Indus’ (trade) receivables have continued to increase for the third consecutive quarter, indicating a delay in collections from Vi…we see this as a risk,” BNP Paribas said in a note.

The brokerage said that while Indus (at a recent earnings call) said it’s in talks with the tenant (read: Vi), it “could not provide any timelines for resolution of the issue, and we believe completion of Vi’s (pending) fundraise will be key to resolution of Indus’ receivables problem”.

Indus shares closed around 1% lower on BSE at Rs 257.25 Thursday.

Vi’s leadership had said at a recent investor call that the telco hopes to conclude its fundraise via the equity route by March 2022. The loss-making telco, with a cash balance of Rs 1,500 crore at December end, has been in talks with a slew of private equity players such as Apollo Global for equity and debt funding, as it looks to turn around operations.

Jefferies said, “Indus Towers’ cash flow conversion has steadily worsened” with its cash flow from operations (CFO)/Ebitda ratio falling to 45%. This, it said, is “due to its receivable days going up to 89 in 3Q as against 60-65 days, possibly due to delays in payment from Vi”.

ICICI Securities, in turn, said Indus’s “receivables (including other current financial assets) rose by Rs 15.3 billion QoQ to Rs109 billion, and could be on account of supporting a customer (read: Vi), who is undergoing a challenging situation”.

It added that a continuous rise in receivables had significantly increased capital employed, and is negatively impacting Indus’s RoCE (returns on capital employed). NewsKoo

To be sure, Indus posted a net profit of Rs 1,571 crore in the December quarter, up 16% on-year, with telcos adding more locations to tap strong data demand amid a continuing pandemic.

BNP Paribas, though, said while “Indus has a security package to secure its trade receivables, it is reluctant to use it and is in constant discussion for resolution”.

At the time of Indus’ merger with erstwhile Bharti Infratel in November 2020, several steps were taken to secure Vi’s payment obligations under the master service agreements (MSAs). Both Vi and its UK-based co-parent , Vodafone Group — which holds 28.12% in the merged Indus Towers entity – had then reportedly entered into security pacts, including a combination of a security deposit by Vi, a security via pledge of a certain number of shares of the merged company out of those issued to Vodafone Plc (as part of the merger scheme) and a corporate guarantee by Vodafone Plc, which can get triggered in certain situations and events.

Analysts also underlined concerns around Indus’ ongoing tower rental renewal talks amid Vi’s continuing cash flow stress. “Indus’s tower contracts have to be renewed by end-FY22, and a meaningful discount in rentals to support its financially-constrained tenant (read: Vi) is a risk to watch out for,” said BNP. Newskoo