Neutral Indus Towers; target of Rs 160: Motilal Oswal

Motilal Oswal recommended Neutral rating on Indus Towers with a target price of Rs 160 in its research report dated April 27, 2023.

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April 28, 2023 / 22:37 IST

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Motilal Oswal's research report on Indus Towers

Indus reported flat revenue and an adjusted EBITDA in-line with expectations, but PAT has been marginally impacted due to INR434m provisioning for VIL. This is much below INR53b provisioned in 9MFY23, as it has paid almost 90-100% of its billings. Weak FCF has reduced to INR13.4b for FY23 and the company has not declared any dividend. We expect Revenue/EBITDA CAGR of 1%/25% over FY23-25, with the risk of falling tenancies, despite the optimism around 5G-led tenancy additions. VIL’s risk of survival and its weak return profile with single-digit ROCE has created uncertainty regarding the outlook for Indus Towers. Subsequently, we reiterate our Neutral rating on the stock.

Outlook

We factor in a revenue/EBITDA CAGR of 1%/25% over FY23-25 to arrive at our TP of INR160, implying an EV/tenancy ratio of INR1.7m and an EV/EBITDA ratio of 4.1x. The absence of dividend in FY23 v/s 5% in FY22 and declining FCF yield to 3.5% dilute the recurring annuity return investment thesis. We reiterate our Neutral rating on the stock.

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