Brokerage firm BoFA Securities has "double upgraded" Indus Towers Ltd. to buy, citing a favourable "risk-reward."
The brokerage has also raised its price target to ₹270 from ₹148 earlier. The revised price target from BoFA implies a potential upside of 29% from Tuesday's closing levels. This is also the highest price target on the street for Indus Towers.
BofA Securities in its note said that Indus Towers has faced issues like increasing receivables, lowering of its Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA), cutting its dividends and others. From that low base, it expects things to improve for the tower company.
Indus Towers will continue to benefit from Bharti Airtel's 4G network expansion in tier-2 and tier-3 cities, according to BoFA, who has upgraded its Compounded revenue growth rate estimate for Indus Towers by 4% for financial year 2024-2027.
BoFA has cited two major catalysts behind its double upgrade. First is the potential reduction in capex at the company as investments reduce the company's improving free cash flow. Currently, capex forms 29% of overall sales.
"We expect this to continue given the improving cashflow at Vodafone Idea," BoFA said. Any tariff hike or fund raise by the telecom operator will improve cashflow and further reduce debt.
BoFA Securities sees room for the gap between tower companies and telecom operators to narrow as cashflows at Indus Towers start to improve.
Despite the buy rating over a 12-month period, BoFA Securities remains concerned over Vodafone Idea for the medium term.
Further deterioration of Vodafone Idea's cashflow and increase in competition are some of the key risks highlighted by BoFA Securities in its note. Brookfield recently pipped Indus Towers to become India's largest tower company post the ATC deal.
Shares of Indus Towers ended 1.5% lower on Tuesday and has gained 14.5% over the last 12 months.
