Recovery of Rs 4,200 crore dues from Vodafone Idea set to aid this firm’s balance sheet; analysts optimistic

On a recent basis, the telecom major Vodafone Idea (Vi) has cleared Rs 1,910 crore of its old dues to Indus Towers using the cash raised by recently issuing fresh equity on a preferential basis. Additionally, the leading tower company Indus Towers also collected Rs 2,328 crore dues from VI during FY25 against the total provision of Rs 5,386 crore as of Mar’24.

And this clearance of dues will augur well for Indus Towers' balance sheet, stated SBI Securities in its report dated January 13, 2025.

Besides the brokerage has chosen Indus Towers as its Pick of the Week for a tenure of 1 year, with the target pegged at Rs 376, implying potential gains of 7 per cent from the last close.

In addition, SBI Securities has listed four more reasons for its 'buy' call on the stock. They are as below:

World leader in providing passive telecom infrastructure: The company is amongst the largest telecom tower company that is engaged in deploying the passive physical infrastructure necessary to house the active equipment – the base transceiver station, transmission link and microwave antenna.

Sticky client base: The company in an oligopoly telecom market provides its services to all telecom majors viz Bharti Airtel, Reliance Jio, Vodafone Idea and other players. These clients in order to have access to uninterrupted services are sticky in nature and thus provide decent revenue visibility, added the brokerage report.

Supportive government policy for the sector: In Sept’21, the government approved telecom reforms with non-telecom revenue being excluded from AGR computation on a prospective basis. This will help in around 80 percent reduction in license fees, said the brokerage.

For future spectrum auctions, no BG (Bank Guarantee) is required. Tenure for future spectrum auctions is also extended to 30 years from 20; while surrender is allowed after 10 years, pointed out the report.

Now most recently in Nov’24, the government has approved a proposal to waive the bank guarantees (BG) that telecom operators were required to provide for spectrum purchases up to 2022. The decision is expected to offer significant relief to major telecom companies, which collectively owe over Rs 30,000 crore in BGs to the government. 

Improvement in Financials; Attractive valuation: In the previous fiscal year 2023-24, the company reported 50 per cent jump in EBITDA to Rs 14,557 crore while net profit was up 3x to Rs 6,036 crore. During 1HFY25, collection dues lifted the profit growth by 57 per cent to Rs 4,149.4 crore despite revenue growth being muted with just 4 per cent YoY growth.

At the current price, the stock is available at an attractive valuation, trading at 11.84x/11.81x of its FY25E/FY26E adj. earnings respectively.

Key downside risks: Indus Towers is dependent on few clients for a larger source of revenue. Furthermore, the tower company is subject to strict regulatory compliance and there is high capex requirement for tower rollouts. 

Indus Towers share price performance 

The stock in the last one year has climbed 63 per cent in share price, while its year-to-date return is as much as 3 per cent.