In Short:
Indus Towers received Rs 360 crore from Vodafone Idea towards old dues, but its trade receivables increased by Rs 430 crore. Despite part-clearance of dues, there was a shortfall in collections from Vi. Indus’ FCF was low at Re 1/share in FY24 due to elevated capex. Vi’s fund-raise is positive for Indus. Indus is likely to continue high tenancy additions in the next few years.
Indus Towers Collects Rs 360 Crore Extra from Vodafone Idea Towards Old Dues
Indus Towers collected an extra Rs 360 crore from Vodafone Idea (Vi) towards old dues including interest, but its trade receivables increased by Rs 430 crore sequentially in the FY24 March quarter, indicating a Rs 60 crore shortfall in collections from its key client, analysts said.
Trade Receivables and Collections
Despite part-clearance of old dues, Indus’ trade receivables have risen sequentially to Rs 6,450 crore in Q4FY24 as the actual collection of Vi’s past outstandings happened in April 2024.
“The Rs 430 crore increase in Indus’ trade receivables is due to a timing difference and the amount was subsequently collected in April,” Kotak Institutional Equities said in a research note.
Indus’ allowance for doubtful receivables shrunk to Rs 5,400 crore in the March quarter from Rs 5,700 crore in the quarter to December, FY24.
Financial Outlook
Indus shares were marginally down (0.32%) at Rs 353.65 in early afternoon trade on the BSE Thursday.
Prior to the latest Rs 360 crore payment, Vi’s past dues to Indus Towers were estimated at around Rs 10,000 crore, as per Ambit Capital.
Elevated capex of Rs 8,400 crore in FY24 resulted in Indus’ FCF being low at just Re 1 /share in FY24. Despite assuming higher growth and partial recovery of outstanding dues from Vi over FY25/26, elevated capex will keep FCF low at Re 1 / share in FY25, reducing the chances of dividend distribution in FY25,” Jefferies said in a note.
Dividend Policy and Future Growth
Indus’ leadership indicated at its March quarter earnings call that its dividend policy would remain linked to its FCF position, which is likely to stay under pressure by high capex amid aggressive tower network expansion, courtesy Airtel’s 5G rollouts as well as Vi’s upcoming 4G network expansion and 5G rollouts.
According to analysts, Indus’s record tenancy additions at 7.9K in Q4FY24 were at a six-year high mainly led by tower additions. “This is likely to continue in the next 2-3 years given rural 4G network expansion by its key customer (Airtel) and an imminent network expansion over FY25-26 by its other anchor tenant (Vi), said Jefferies.
Vi’s Fund-Raise and Indus Towers
Analysts added that Vi’s latest fund-raise is a “material positive” for Indus, though it is likely adequately priced in. Cash-strapped Vi recently raised Rs 18,000 crore via a follow-on public offer (FPO) and is in discussions with its battery of lenders to conclude a Rs 25,000-crore debt issue, which will help it achieve its targeted Rs 45,000 crore fundraise and compete effectively with bigger rivals, Reliance Jio and Bharti Airtel.
ICICI Securities said Indus’ strong cash collections from Vi towards past dues and interest on over dues had improved its cash conversion in FY24 (versus FY23), and despite a significant jump in capex, it was able to fund capex through internal accruals.
