Indus Towers Ltd: Ride the 5G Story

CMP: Rs.275.10.

P/E: 13.94

Industry P/E: 23.81

Dividend Yield: 7.31%

Market Cap: Rs.74.137 crore

Introduction:

Bharti Infratel Limited and Indus Towers merged to establish Indus Towers Limited. The combined strength has made Indus, one of the largest telecom tower companies in the world, providing, high-quality, inexpensive, reliable services and enabling communication for millions of people every day.

Indus Towers Limited has a statewide presence, covering all 22 telecom circles, with around 183,462 towers and 332,551 co-locations (as of 30 September 2021). Bharti Airtel (together with Bharti Hexacom), Vodafone Idea Limited, and Reliance Jio Infocomm Limited are Indus' top customers, as they are India's top wireless telecommunications service providers by revenue.

Financials: 

Net Sales at Rs 6,875.20 crore in September 2021 up 289.33% from Rs. 1,765.90 crore in September 2020.

Quarterly Net Profit at Rs. 1,559.80 crore in September 2021 up 249.81% from Rs. 445.90 crore in September 2020. The left hand side photo shows what Fund Managers bought. Please click on the photo to get a better view. Photo: Zee Business

EBITDA stands at Rs. 3,732.70 crore in September 2021 up 301.75% from Rs. 929.10 crore in September 2020.

Indus Towers' EPS has increased to Rs. 5.79 in September 2021 from Rs. 2.41 in September 2020.

An ICICI Direct Report says that:

💢It expects the net co-locations to reach 353509 in FY23 Vs Q4FY21 co-location count of 322438. 

💢It expects rentals (including exit rentals) to witness 2.8% CAGR over FY21-23E to Rs.17772 crore, which is quite healthy. 

💢It notes that the management expects exit penalty at ~ Rs.180 crore a quarter in CY21 and Rs.100 crore/ quarter thereafter in CY22.

💢It expects, that  the company will continue to engage with telcos to get back to fixed cost model, which, it believes, will be win-win for everyone. 

💢It expects the margins to remain flattish over FY21-23E at 51.1%.

Moreover, I feel, Lower Depreciation due to change in accounting policy can aid future PAT (Profit After Tax).

Positives:

Dividend: Indus paid dividends of Rs. 20.12 per share in FY21 (payout is 110% already).

Leverage: Debt (including lease liabilities) to EBITDA is 1.45x Vs its limit of 3x at the end of March 2021 quarter. The company is comfortable at this level and, going forward, if debt is required, it has the room to raise the same.

Cost of construction of tower: Steel prices have come down or steel is becoming cheaper. Moreover, the company is negotiating power with vendors. If the cost comes down, it will have certain benefits. 

Besides, due to technological advancements, the requirement of large towers is coming down especially in rural areas. Also, it is looking to implement some design changes, which augurs well in terms of efficiency and cost.

Energy margin: Motilal Oswal Securities, expect margin to improve going forward as the company is moving towards a fixed energy model and the management remains hopeful of completing FEM soon with operators.

5G rollout: Post announcement of ingenious 5G tests by RJio and demo tests of 5G by BHARTI, 5G is expected to be aggressively rolled out soon, with improved performance parameters of latency, speed, and network capacity. This is likely to give rise to massive opportunities in the internet space and the application of 5G to GDP contribution could be significant.

Conclusion: The investors can buy the scrip at the CMP of Rs.275.10 for at least 20% to 30% gain by March, 2022. The short term players can however look for targets of Rs.292/297, by the end of this month. SL for the short term traders: Rs. 267.