Indus Towers expects capex intensity to remain high in the current financial year, as Bharti Airtel aggressively rolls out towers and Vodafone Idea (Vi)expands 4G and launches 5G, the management has told analysts.
“Indus expects a fair share in VIL’s expansion despite the risk of higher competitive intensity. The company has an advantage from its pan-India tower portfolio, good footprint in past VIL radio frequency planning, and strong execution track record. Nonetheless, it remains cautious about competition,” ICICI Securities said in a note after a meeting with Indus Towers chief financial officer Vikas Poddar.
Indus management told analysts it anticipates overdue recovery from Vodafone Idea of up to Rs 5,400 crore. Indus has been collecting 100 percent of receivables every month since January 2023 and more in the third and fourth quarters of FY24, as a result there was some unwinding in provision for doubtful debts.
In June, Vodafone PLC, the telco’s UK-based parent, in June sold an 18 percent stake in Indus for 1.7 billion euros (approximately Rs 15,300 crore).
“Monetisation of Indus stake held by Vodafone Plc can aid partial recovery of overdue. Indus has a stated dividend policy that any FCF generated by the company will be used to pay the dividend, and Vodafone Idea's overdue recovery should boost FCF in FY25,” the brokerage said in a note seen by Moneycontrol.
Expanding networks
Vodafone Idea is expected to roll out over 60,000 tenancies in the next few quarters, a lucrative opportunity for the Indian tower industry.
“Indus has been in discussion with Vodafone Idea. Indus believes it has a relevant network footprint, as network designing was done based on past requirements for its anchor tenants. This puts Indus in a better position vs. its peers,” the brokerage said.
Indus has also completed network expansion into a deep market for Bharti Airtel, which VIL can use for its rollout with sharing benefits.
Indus has improved its execution capabilities in the past few years, which has helped Bharti Airtel widen its rural footprint effectively and promptly.
“VIL will have to expand its 4G network footprint faster to regain lost ground; thus, Indus’ strong track record of execution can come in handy,” ICICI Securities said.
Also read: Bharti Airtel in talks with Vodafone to buy 3% more stake in Indus Towers; may merge with data unit
On the other hand, Bharti Airtel, which owns 48.95 percent stake in the Indus, has guided 25,000 site additions, primarily to cover the remaining rural locations, having seen success in FY24 with 46,000 sites.
“Indus believes that it has captured higher incremental market share from Bharti’s rural expansion and will continue to expand towers to meet Bharti’s requirements even in FY25,” the brokerage said. The tower company expects the momentum to continue in FY25.
In its interaction with the brokerage, Indus Tower’s management cautioned that tower and tenancy expansion is cyclical.
“The tenancy/tower addition may pause, and future expansion will be linked with data capacity enhancement. 5G is now rolled out as loading, and considering the baseband is 3300MHz, and as data capacities rise, 5G will also require infill sites in the future, driving tenancy/tower demand for Indus,” it added.
According to ICICI Securities, Indus Tower’s rental per tenant is likely to rise 0.1 percent sequentially, partly driven by higher loading revenue on the 5G rollout and a rise in single-tenancy towers, offsetting the adverse impact from equalisation/renewal.
Rental revenue may rise 1.2 percent sequentially (+6.9 percent year on year) to Rs 46 billion (Rs 4,600 crore), ICICI Securities said. It expects earnings before interest, taxes, depreciation, and amortisation (EBITDA) to decline 6.2 percent sequentially (up 9.7 percent YoY) to Rs 38 billion (Rs 3800 crore), as the previous quarter benefited from a provision reversal.
“We expect net profit to drop by 12.6 percent sequentially (up 20.2 percent YoY) to Rs 16 billion (Rs 1600 crore),” it said.
JM Financial, in a separate note, said Indus' revenue is likely to grow 5.1 percent sequentially to Rs 76 billion (Rs 7,600 crore). Its expects EBITDA to improve 2 percent sequentially to Rs 42 billion (Rs 4,200 crore), assuming Rs 3-4 billion (Rs 300-Rs 400 crore) of provision write-back as seen in 4QFY24. The likely normalisation of the energy EBITDA margin to NIL aids this.
“We build in ~7.1k net tenancy additions in 1QFY25 for Indus Towers vs ~7.9k in 4QFY24; we expect strong tower additions at ~7k, primarily driven by Bharti’s continued rural expansion. However, we assume that rentals will be flat QoQ,” JM Financial said.
At 10.30 am, the Indus Tower stock was trading at Rs 417.65 on the National Stock Exchange, up 2.65 percent from the previous close.
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