One of the largest telecom tower company stocks gained around 3 percent in the last two trading sessions after BoFA Securities revised a target on stock with an upside of 26 percent.
The stock belongs to the large-cap category with a market capitalization of Rs 57,792 crore. While Indus Towers shares have gained 31 percent in the last six months and 18 percent in a year. On Friday’s early trade, shares were trading at Rs 214 apiece, down 0.07 percent on the exchange.
The company’s revenues have declined by 10 percent year on year from Rs 7,967 crore in Q2FY23 to Rs 7,132 crore in Q2FY24, while net profit has slightly increased by 48.5 percent from Rs 872 crore to Rs 1,295 crore.
Indus Towers Limited is engaged in the business of setting up, operating, and maintaining wireless communication towers. The company has a tower market share of 33% and a tenancy market share of 42% which makes it a leader in the telecom tower industry in India.
BoFA Securities has revised a ‘buy’ rating on Indus Towers Ltd with a target of Rs 270 per share from Rs 148 per share, with an upside potential of 26 percent based on Friday’s trading price of Rs 214 apiece.
The rationale behind the recommendations are
BofA Securities expects company issues like increasing receivables, and lowering its Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA) to improve from its slow base.
The brokerage expects Indus Towers to benefit from Bharti Airtel’s 4G network expansion in tier-2 and tier-3 cities and upgraded Indus Towers Compounded revenue growth rate estimate by 4% for the financial year 2024-2027.
BoFA upgrades are based on the company’s reduction in capex at firm investments reducing the company’s improving free cash flow. Currently, capex forms 29% of overall sales.
While the company’s major client Vodafone Idea has been paying tower charges for the last six to nine months, earlier Vodafone Idea receivables raised to Rs 5,500 crore at one point in time.
Based on the aforementioned factors, the brokerage anticipates that the company’s cash flow will increase as the company starts to receive receivables from Vodafone Idea. Despite a 12-month buy recommendation, BoFA Securities is concerned about Vodafone Idea in the medium run.
Some of the significant concerns noted by BoFA Securities in its note are further deterioration of Vodafone Idea’s cash flow and increased competition.
Written by Omkar Chitnis
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