Indus Towers has set aside Rs 1233 crore as doubtful debt in its balance sheet, on account of receivables due from one of its key customers, receipt of which remained challenging in the short term, and has impacted its financial performance for the quarter ended June 30.
The key customer, which analysts say, is cash-strapped Vodafone Idea, has told the tower company that it is on the verge of finalising a payment plan to the company where it has committed to pay part of the amount to be billed till the end of the year and 100% of the amount billed thereafter.
“While the customer has expressed it is closer than ever in tying up its financing needs, and also considering the fact that there has been some positive developments recently, including its participation in the 5G spectrum auction, we have nevertheless considered the current situation and adopted a more stringent accounting practice for making provision for doubt debts in respect of dues recoverable from the customer,” said chief financial officer, Vikas Poddar, in an earnings call with analysts Wednesday.
As part of its accounting policy, when receivables are overdue beyond a certain threshold, they need to make provisions for doubtful debts, Poddar said. But they are also written back as and when the company is able to collect those receivables.
“Collectively, as board members, we believe their receivables are good and recoverable. However, we have applied prudent accounting practices to show the receivables as doubtful debt, which has impacted our EBITDA, profits, etc,” said outgoing chief executive officer, Bimal Dayal in the earnings call.
The remaining dues, the customer has proposed to pay between January 2023 and July 2023. The proposal is under consideration of the company, said the auditor’s report by Deloitte which audited the financials of the company.
“We could reverse the (receivable) trend in Q4 FY22 by restructuring the security package. This cover ended on July 15 2022. We continue to work with our customer to improve our receivable position, but we are all aware of how stretched their financial position is,” Dayal said.
Indus Towers reported a 66% on-year and 73.6% sequential decline in net profits for the quarter ended June 30 to Rs 477 crore compared with Rs 1,415 crore a year ago and Rs 1828.5 crore in the March quarter.
The company’s free cash flow, and EBITDA margin were also impacted by the receivables situation. Free cash flow was down 75.21% sequentially to Rs 5509 crore, on account of the delay in payments from one of the key customers.
However, Dayal said the company’s outlook towards the future remains positive.
“Given the recently concluded 5G auctions, the exploding data growth and the agreements on the MSA renewal framework, our business fundamentals remain stable and have improved this quarter,” Dayal said.
In the earnings call, Indus Towers said it has secured renewals of the majority of co-locations expiring between March 2022 and 2023, for an extended period of 10 years. However, the renewal framework now includes a discount on prevailing rates which was estimated to result in a marginal reduction in revenue per quarter.
Chief financial officer Poddar, believes the revenue loss will be offset by future growth.
“We believe the financial impact of the discount will be offset by the incremental revenue from future rollout by the customers for their network expansion, the launch of 5G services and other network solutions. Moreover, securing a ten year extension provides a long term certainty and visibility of core revenues,” Poddar said.
The company also sees a growth opportunity in the upcoming pan-India 5G deployment by the telecom companies after a successful spectrum auction where the government sold 51,235 MHz spectrum out of the 72,098 MHz spectrum put on the block.
“Indus towers is geared up to support the 5G requirements of the operators based on their rollout strategy. The rapid growth in data consumption coupled with continued migration to 4g and 5g is expected to drive the demand for passive telecom infrastructure and we are very well positioned to cater to this demand.” Dayal said in the earnings call.
Shares of Indus Towers Wednesday fell 5.93% to Rs 206.35 in closing trade, a day after it reported its financials for the June quarter. Finance Feels