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MOSL: INDUS TOWERS: Higher provisions impact profitability; receivables remain a key monitorable

INDUS TOWERS: Higher provisions impact profitability; receivables remain a key monitorable 

(INDUSTOW IN, Mkt Cap USD7b, CMP INR206, TP INR195, 6% Downside, Neutral)

• INDUSTOW saw an eventful 1QFY23, with a muted performance. Adjusted EBITDA fell 1% QoQ. It finally saw a MSA renewal, concluding with an annual escalation of 2.5%, but 9% exit allowance and an estimated 12-15% cut in rental, which could dilute earnings. The INR12.3b provision for doubtful debt and receivables of INR62b, of which ~INR40b may be overdue, hints at an upcoming impact stemming from the liquidity risk posed by IDEA.
• IDEA has proposed part payment until Dec’22, which can further balloon receivables, with recovery subject to its capital infusion plans. We estimate an EBITDA CAGR of 1.6% over FY22-24, with a risk of falling tenancies. We maintain our Neutral rating.

 

Adjusted revenue/EBITDA remains flat sequentially

• Consolidated revenue fell 3.1% QoQ to INR69b (in line). Revenue in 4QFY22 included a one-time provision reversal of INR5.5b. Adjusting for one-offs (a reversal of the revenue provision and exit charges of INR5.5b), consolidated revenue rose 5% sequentially.
• Rental revenue fell 11% QoQ (7.3% miss) on lower rental rates, despite flattish tenancies. Adjusted for one-offs, rental revenue grew by ~1% QoQ. Revenue from the Energy segment grew 12.8% QoQ to INR26.7b.
• Consolidated EBITDA declined by 44.3% QoQ to INR22.6b (est. INR39.1b) on account of higher operating expenditure (up 51% QoQ).
• Other expenses included INR12.3b towards doubtful debts on account of the weak liquidity position of IDEA. Adjusted for the one-off reversal in 4QFY22 and provision in 1QFY23, EBITDA fell 1% to INR34.9b.
• PBT/PAT fell 73.6%/73.9% QoQ to INR6.4b/INR4.8b (73% miss) on the back of a decline in operating profit.
• Net debt (excluding lease) grew sharply to INR52.6b, v/s INR28.5b as of Mar’22, on account of lower FCF of INR5.5b (v/s INR22.3b in 4QFY22) as EBITDA declined steeply in 1QFY23.