Indus Towers wants Vodafone Idea to settle all dues in one go
MUMBAI, NEW DELHI Indus Towers expects Vodafone Idea to clear all its pending dues in one go, the top executive of the tower provider said on Tuesday, a day after the country’s third-largest telecom operator said that the proceeds of the ₹18,000-crore follow-on public offer (FPO) would not be used for paying vendor or government dues.
We are pleased to see the positive developments on Vodafone Idea’s fundraise and expect that VI will clear over-dues of Indus in its entirety. We remain committed to supporting all our customers in their growth plans and are best positioned to do the same for VI, Indus Towers’ managing director and chief executive Prachur Sah told Mint in response to queries.
Sah did not comment on the ongoing payment agreements between the companies basis which Vodafone Idea has made payments in the past quarters, or whether there would be any changes made to these agreements.
Indus had collected ₹300 crore from VI on account of outstanding past dues in addition to 100% of the monthly collection, in the quarter ended December 2023. In that quarter, it had an impact of ₹2,270 crore due to provision for doubtful debts and ₹493 crore from an exceptional item. Industry insiders peg Vodafone Idea’s dues to Indus Towers at about ₹7,000 crore.
Vodafone Idea chief executive Akshaya Moondra said at the launch of the FPO that the fundraise will be used primarily for capex requirements. We cannot use the funds for making any payments to promoter or promoter group companies and that would be the governing factor, Moondra had said. Indus Towers’ promoters include Vodafone Group Plc that is also one of the promoters of Vodafone Idea.
The carrier has said in its red herring prospectus that it has negotiated extended credit periods with some vendors to partially fulfil its contractual obligations, and that it was actively engaged in ongoing discussions with vendors to develop mutually agreeable payment plans to address outstanding dues.
In the prospectus, Vodafone Idea has stated that it had ‘significant amount’ as outstanding dues payable to vendors, and that these payments were crucial since non-payments to tower vendors and equipment suppliers could have an adverse effect on its business. As of December 31, 2023, trade payables aggregated to ₹13,807 crore, payables for capital expenditure stood at ₹6,926 crore and lease liabilities were at ₹36,712 crore.
Analysts were, however, bullish on Indus, since VI indicated that it intends to set up 26,000 new 4G sites, expand capacity of 40,800 existing 4G sites and set up 22,000 new 5G sites in the next two years. Assuming 70%+ of this business comes towards Indus, our sensitivity analysis indicates 15-18% EPS improvement (assuming potential transaction is consummated). We would hence expect consensus upgrades also, BofA analysts said in a note.
Further upside on Indus could likely be driven by continued multiple re-rating at Indus, led by improving health of its customer VIL. We note that Indus’ FY25E EV/EBITDA multiple has re-rated from 5X at start of this year to 6.5X now. However, it is still trading at discount to global tower-co avg of 12X, they added.
While we believe Indus’ stock is already pricing in a bull-case outcome, upcoming events which could support sentiment include reversal of past write-offs related to dues from VI, and b resumption of dividend payments, analysts at Macquarie said in a note.
We reiterate our view that Indus Towers is a key beneficiary with still meaningful room for further upside from current levels, analysts at Citi Research said.
17 Apr 2024
