The government’s reforms lift the essential overhang on Indus Tower’s tenancy. Moreover, Bharti’s plans to step up capex, imminent 5G capex cycle and ongoing moderation in tenancy exits all signal an improvement in tenancy outlook. We raise our FY23/24 estimates by 2-5%, lift our PT to Rs 310/share and upgrade the stock to Buy. Despite the 20% move more than previous month, the stock trades at an undemanding 6.5x EV/Ebitda and provides an desirable 7% dividend yield.
Govt. reforms lift essential overhang: The government’s current measures which present a 4-year moratorium on AGR and spectrum repayments will provide a Rs 250-bn annual cashflow relief to Vodafone Idea (VIL) and enhance its possibilities of surviving for longer. Furthermore, the solution of paying interest amounts on deferment of payments via equity could lead to the govt. owning a 23% stake in VIL at the finish of 4-year period. This improves Indus Towers’ tenancy outlook more than next handful of years offered that forced web-site reduction by VIL is unlikely to take location now. Moreover, the govt’s possible stake in VIL could potentially avert it from going below, which lowers the essential tenancy threat.
Bharti’s capex focus, 5G yet another positive: Bharti Airtel’s current plans to step up network investments by raising Rs 210 bn via a rights challenge and investing the cashflow relief of Rs 117 bn towards network investments are probably to additional accelerate tower and tenancy additions for Indus Towers. Besides, 5G auctions are probably more than the next two years, immediately after which network rollouts are probably to accelerate.
Rising gross tenancies falling exits: Over the previous two years, Indus Towers has seen a steady rise in gross tenancy additions led by network rollouts by Bharti Airtel. Moreover, tenancy exits for Indus Towers have moderated, indicating that network optimisation by Vodafone Idea (VIL) is total. Even although tower and tenancy additions in Q1FY22 have been impacted by lockdowns, the tenancy outlook for Indus Towers is on an enhancing trajectory.
Raise earnings and PT upgrade to Buy: We decrease our FY23-24 tenancy exit estimates and raise our tower forecasts by 1-2% to issue in Bharti’s larger capex. Both these combined outcome in a 1-3% upward revision to our tenancy estimates and 2-5% upgrade to our FY23-24 income/Ebitda/PAT estimates. We upgrade Indus Towers to Buy with a revised PT of Rs 310 due to earnings upgrades and a larger 7x target EV/Ebitda various. Despite the 20% move more than the previous month, Indus Towers nonetheless trades at 6.5x EV/Ebitda, in line with its 3-year typical, and provides an desirable dividend yield of 7%, the certainty of which has also enhanced. Investments into VIL by its promoters could add to additional upside.