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Indus Towers: Provision woes persist, ICICI Securities

Indus Towers’ (Indus) Q3FY23 performance was yet again marred by provision (of Rs23bn) for doubtful debt and reversal of revenue from equalisation of Rs5bn (as exceptional loss). This has resulted in the company reporting a net loss of Rs7bn. Indus has taken a provisional impact of Rs53bn in past three quarters. Net tenancy addition was 1.3k and lean tower addition was at 1.4k, which are likely to remain muted as 4G rollout nears completion and 5G deployment for next two years will be largely via loading. Bharti and RJio are rolling out 5G at a pace of >5k BTS/week, which should help Indus with higher loading revenues. Uncertainty on going concern status for VIL remain an overhang on performance, long-term cashflow and value of the company. We cut our EPS estimate for FY23E by 50% on higher provisions and exceptional loss, and by 4.1% for FY24E. Our revised DCF-based target price is Rs158 (vs Rs194 earlier) as we roll forward to FY24E. We have applied 15% discount due to the rising risk to VIL. Maintain HOLD.


  • Rental/tenant dipped 13.3% QoQ. Reported rental revenue dipped 12.7% QoQ / 5.1% YoY to Rs42bn. This was due to multiple factors: 1) one-off settlement gains of Rs5.5bn in Q2FY23; 2) lower penalty revenue of Rs206mn in Q3FY23 (vs Rs291mn in Q2FY23); and 3) derecognition of rental equalisation for VIL’s rentals. However, we expect Indus to have partly benefited from higher loading revenue from rollout of 5G. Loading benefit should accelerate in the coming quarters as Bharti / RJio expand their 5G presence. Indus mentioned operators have installed >50k 5G BTS and they continue to add >5k BTS/week, which is expected to accelerate. One BTS per spectrum band is installed where RJio should be installing two BTS per site (one each for 700MHz and 3.5GHz) while Bharti will add only one BTS per site (3.5GHz).
  • Net tenancy addition at 1,307: Indus’ net tenancy was hit by 856 exits (probably from the renewal portfolio since renewal happened for only 91% of the tenancies). Tower addition was steady at 1,466. Tenancy-sharing ratio stood at 1.8x. We do not expect faster growth in macro towers / tenancy as telcos (Bharti / RJio) are close to completion of 4G rollout. Lean tower addition was 1,408 in Q3FY23 vs 3.1k in past two quarters. Company expects single-tenancy lean towers to have better RoCE vs macro towers. Indus does not expect capacity constraint for 5G rollout.
  • EBITDA yet again impacted by provisioning. Indus’ revenue fell 15.1% QoQ (had one-off gains in Q2FY23) / 2.3% YoY to Rs68bn. Its rental revenue dipped 12.7% QoQ / 5.1% YoY to Rs42bn. Energy revenue fell 18.6% QoQ / rose 2.4% YoY to Rs26bn. Cash EBITDA fell 81% QoQ / 87% YoY to Rs3.8bn and was impacted by provisioning of Rs23bn. EBITDA loss from energy was Rs318mn. Net loss stood at Rs7.1bn (vs profit of Rs16bn in Q3FY22); company was further hurt from exceptional loss of Rs5bn on reversal of equalisation revenue attributed to VIL.
  • Other highlights. 1) Indus has discontinued recognising rental equalisation for VIL considering that VIL was unable to raise capital before Dec’22; 2) ‘other income’ includes interest revenue collected on delayed rental revenue payment by VIL; 3) significant portion of rental invoiced in Q3FY23 was collected by Indus; and 4) capex was higher at Rs10bn (15.3% of revenue) on augmentation of energy resource on rise in loading, deployment of lean towers and preparation for faster 5G rollout. Capex may remain high over the next few quarters as operators accelerate deployment of 5G.
  • Key risks (downside): 1) Concerns on VIL’s going concern status; and 2) lower-than-expected benefit from loading charges.

For report,

CT Bureau

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