The shares of a telecommunications services company specializing in providing passive infrastructure services to telecom operators are in focus following the government support on Vodafone Idea as it converted part of Vi’s Rs. 37,000 crore spectrum dues into equity by increasing its stake in the company from 22.6 percent to 48.99 percent.
Price Action
With a market capitalization of Rs. 93,509.68 crores on Tuesday, the shares of Indus Towers Limited rose upto 8 percent, making a high of Rs. 360.85 per share compared to its previous closing price of Rs. 334.10 per share.
Vodafone Idea’s Financial Struggle
Vodafone Idea (Vi), one of India’s top telecom operators, has been facing serious financial problems due to a large amount of debt. A major part of this debt was owed to Indus Towers, the company that provides telecom tower infrastructure.
Vi owed about Rs. 7,000 crore to Indus Towers for using its services, which include managing and maintaining telecom towers across the country. This unpaid debt created a lot of pressure on Vi, affecting its operations and overall financial health. With such a large amount due, the company struggled to keep its business running smoothly and meet its financial obligations.
The government’s support for Vi
Following the financial crisis, the Indian government stepped in to help Vodafone Idea. Recognizing the company’s importance in India’s telecom sector, the government decided to act. It converted part of Vi’s Rs. 37,000 crore spectrum dues into equity by increasing its stake in the company from 22.6 percent to 48.99 percent, meaning the government took ownership stakes in Vi.
This move allowed the government to become a shareholder in the company, easing Vi’s debt burden. The fresh capital provided immediate relief, helping Vi pay off some of its urgent debts, including what it owed to Indus Towers.
What’s Next for Vi and Indus Towers?
While the sale of Vodafone Group’s shares and the government’s intervention helped Vodafone Idea pay down some of its dues, the journey is far from over.
Strengthened Telecom Infrastructure: As Vi stabilizes, it is expected to increase investments in its network infrastructure, especially for 5G deployment. This creates growth opportunities for Indus Towers to expand its infrastructure offerings, providing tower and passive services to Vi and other telecom operators.
Growth in 5G Rollout: The 5G rollout in India will be a major focus for both Vi and Indus Towers. As demand for 5G infrastructure grows, Indus Towers is set to benefit from increased needs for towers, equipment, and network-sharing services.
Vi’s Financial Stabilization: Vodafone Idea has cleared a part of the Rs. 7,000 crore owed to Indus Towers, improving its financial position. Approximately Rs. 2,841 crore has been cleared by the company, and the remaining Rs. 4,159 crores are yet to be settled by the company in the upcoming Quarters.
Boost Investor Confidence and Stock Performance: As Vi stabilizes and clears its dues, investor confidence in both companies is expected to rise, potentially driving positive stock performance for Indus Towers due to reduced default risks and prospects for sustained growth.
Brokerage Target
The brokerage has placed a 90-day positive catalyst watch on Indus Towers, anticipating the resumption of dividend payouts, with an expected Rs. 18 per share payout by April. Citi’s optimistic view on Indus Towers is also supported by Vodafone Idea’s significant progress in raising its debt.
Citi has set a price target of Rs. 470 for Indus Towers, implying a potential upside of 41 percent from Friday’s closing levels. The stock’s implied dividend yield of 5 percent to 7 percent makes it an attractive investment opportunity, according to Citi’s report.
Financials
The company’s revenue rose by 6.02 percent from Rs. 7,197.9 crore to Rs. 7,631.2 crore in Q3FY24-25. Meanwhile, Net profit rose from Rs. 1,540.5 crore to Rs. 4,003.2 crore during the same period.
Written by Sridhar J
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