Recommendation From Telecommunications - Equipment Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

INDUS TOWERS LTD. : A TOWERING PRESENCE

HERE IS WHY
✓Huge growth potential
✓Capitalising synergies post-merger
✓Strong operating cash flows

Formerly known as Bharti Infratel Ltd., Indus Towers Ltd. is one of the largest digital communications’ infrastructure providers which builds, owns and operates towers and facilities related to towers to provide seamless connectivity. The company has over 1,79,225 towers and 3,22,438 co-locations spread across 22 telecom circles. Some of its major clients include Vodafone Idea, Bharti Airtel and Reliance Jio Infocomm. Growing network connectivity need in India provides great opportunity for the company’s growth which reported net sales of Rs 13,954 crore in FY21 compared to Rs 6,743 crore in FY20. That is a growth of nearly 107 per cent.

The merger of Bharti Infratel with Indus Towers took place in November 2020. From there on, the combined strength of the two companies has led to the establishment of the largest telecom infrastructure player in India with a robust business model and enriched connectivity. Its EBIDTA stood at Rs 7,575 crore in FY21 as against Rs 4,024 crore in the previous year. That is a growth of over 88 per cent. Also, the PAT grew by 51.8 per cent, rising from Rs 1,918 crore to Rs 2,913 crore from FY20 to FY21, respectively. The huge growth has mainly come on the back of the merger.

Dramatic growth of more than 223 per cent can be seen in the cash flows from operating activities increasing from Rs 2,315 crore in FY20 to Rs 7,481 crore in FY21. The company has added over 11,000 (highest in the decade) towers in FY21 as against 7,326 in FY20. Net sales for the quarter ended March 2021 stood at almost Rs 6,492 crore. That’s a growth of 59.8 per cent on QoQ basis and 286 per cent on YoY basis. The EBITDA, exclusive of other income, was Rs 3,412 crore which saw a growth of 68.3 per cent QoQ and 295 per cent YoY. The net profit was Rs 1,364 crore – a whopping growth of 94 per cent QoQ and 236 per cent YoY.

Here again, the huge tower addition and synergy post-merger has played its role. The company has a market share of 31 per cent in the tower sector and 42 per cent in tenancy which places it in a leadership position. It also develops ‘smart city’ projects with the three projects of NDMC, VMC and Bhopal already completed. The Dehradun project is in progress. The company has provided great returns for investors with ROE strongly placed at 19.81 per cent and ROCE at 23.63 per cent. It is also a high dividend paying company with a dividend yield of 9.12 per cent and has a debt-to-equity ratio of 0.51.

The Indian telecom market is the second-largest in the world in terms of number of subscribers and the total data traffic has increased by 60 times in just five years (2015-20) since the introduction of 4G in 2014-15. The 5G introduction in the near future provides immense opportunities for the telecom industry which augurs well for Indus Towers. In short, the outlook for the Indian telecommunication sector is positive. A passive infrastructure company like Indus Towers benefits from the fast-growing data volumes and need for better connectivity. With the introduction of new technologies, the company has a crucial contribution to make in the infrastructure space and thus has huge growth potential. By virtue of these factors, we recommend our reader-investors to BUY this stock.