Brokerage firm BoFA Securities has elevated its rating on Indus Towers Ltd. to a “buy,” emphasizing a favorable “risk-reward” scenario. The brokerage firm has also increased the target price of Indus Towers to ₹270, up from the previous ₹148.
According to Bank of America, this adjusted target suggests a potential upside of 29% from Tuesday’s closing levels. It’s noteworthy that this revised target stands as the highest among all price targets set by analysts for Indus Towers.
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According to a note from BofA Securities, Indus Towers has encountered challenges such as rising receivables, a decline in Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA), reduced dividends, among other issues. Despite these setbacks, the firm anticipates a positive turnaround for the tower company from its current lower performance.
Indus Towers is poised to reap ongoing advantages from Bharti Airtel’s expansion of its 4G network into tier-2 and tier-3 cities. Bank of America (BoFA) has upgraded its estimate for Indus Towers’ Compounded Annual Growth Rate (CAGR) by 4% for the fiscal years 2024-2027.
BoFA attributes this double upgrade to two primary catalysts. Firstly, there’s the potential decrease in capital expenditure (capex) at the company, as reduced investments contribute to an improvement in its free cash flow. Currently, capex constitutes 29% of the overall sales.
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The second catalyst highlighted is the prospect of a special dividend if Vodafone Idea, a significant customer, reduces its provisions. The note points out that Vodafone Idea had faced delays in paying Indus Towers, resulting in receivables at one point reaching ₹5,500 crore. However, in the past six to nine months, the company has consistently paid the full amount against the monthly invoices.
The brokerage firm further said that it expects this to continue given the improving cashflow at Vodafone Idea. Any potential increase in tariffs or fundraising initiatives by the telecom operator would enhance cashflow and contribute to further debt reduction.
BoFA Securities anticipates a narrowing of the gap between tower companies and telecom operators as Indus Towers’ cashflows begin to improve.
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Despite maintaining a buy rating for a 12-month period, BoFA Securities expresses medium-term concerns regarding Vodafone Idea.
BoFA Securities’ note highlights the key risks for Vodafone Idea, including the potential deterioration of its cashflow and heightened competition. Brookfield recently surpassed Indus Towers to become India’s largest tower company following the ATC deal.
On Tuesday, shares of Indus Towers concluded 1.5% lower but have shown a 14.5% gain over the past 12 months.
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Published: 10 Jan 2024, 05:37 PM IST