BoFA Securities has upgraded its rating on Indus Towers Ltd. to “buy,” citing a favorable “risk-reward” scenario. The brokerage firm has also raised the target price for Indus Towers to ₹270, a significant increase from the previous ₹148. This adjusted target implies a potential upside of 29% from the closing levels on Tuesday, making it the highest target among all analysts covering Indus Towers.
Despite challenges faced by Indus Towers, such as rising receivables, declining EBITDA, reduced dividends, and other issues, BoFA Securities anticipates a positive turnaround for the tower company. The upgrade is supported by ongoing benefits from Bharti Airtel’s expansion of its 4G network into tier-2 and tier-3 cities.
BoFA has revised its estimate for Indus Towers’ Compounded Annual Growth Rate (CAGR) by 4% for fiscal years 2024-2027. The upgrade is attributed to two main catalysts: the potential decrease in capital expenditure (capex) leading to improved free cash flow and the possibility of a special dividend if Vodafone Idea, a significant customer, reduces its provisions.
The brokerage firm notes that Vodafone Idea has been consistently paying the full amount against monthly invoices in the past six to nine months, contributing to an improvement in its cash flow. BoFA Securities expects this positive trend to continue with potential increases in tariffs or fundraising initiatives by Vodafone Idea further enhancing cash flow and aiding debt reduction.
While maintaining a buy rating for a 12-month period, BoFA Securities expresses medium-term concerns regarding Vodafone Idea, highlighting risks such as potential deterioration of its cash flow and increased competition. Despite Indus Towers concluding 1.5% lower on Tuesday, the stock has shown a 14.5% gain over the past 12 months.
