Indus Towers has recognised its exposure to Vodafone Idea as revenue in Q4FY23 earnings. The latest earnings print reads, Vodafone Idea has been paying an amount equivalent to monthly billing since January 2023. Detailing the reason behind revenue recognition, Indus Towers Says, “It is done on the basis of straight lining of rentals over the contractual period".
This revenue recognition is of importance as Indus Towers in December 2022 quarter, had recorded an impairment charge of Rs 492.8 crore relating to the revenue equalisation assets up to September 30, 2022, for Vodafone Idea and presented it as an exceptional item in the consolidated statement of profit and loss. According to the company, allowances for doubtful receivables are at Rs 34.8 crore as of March 2023 against Rs 2,270 crore for December-ending quarter.
It is important to note that the payment being made by Vodafone Idea is for dues from January 2023. For outstanding till December 2022, it has failed to meet the payment schedule, saying its funding plan did not materialise. To cover part of this dues, Indus Towers has a secondary pledge on shares held by one of the customer's promoters and there is a corporate guarantee provided by the customer's promoter. Indus Towers says, “‘These securities could be triggered in certain situations and events in the manner agreed between the parties. However, these securities are not adequate to cover the total outstanding.”
Vodafone Idea in its results for the quarter and nine months ended December 31, 2022, had indicated that its ability to continue as a going concern is dependent on its ability to raise additional funds as required, successful negotiations with lenders and vendors for continued support and generation of cash flow from operations for settling its liabilities as they fall due.
For March-ending quarter Indus Towers has reported earnings largely above estimate with margin climbing back above 50 percent after three quarter. The stock on the back of this, opened 3 percent higher in Wednesday’s session.
Jefferies says uncertainty may not be over with falling market share. Also, tariff hikes and fund infusion (if any) can be the key to continued payments to Indus Towers. The brokerage upgrades its recommendation to 'Hold' with a revised target price of Rs 155 due to a pick-up in growth and better-than-expected free cash flow conversion. However, further upside in the stock is unlikely as it believes Vodafone Idea's cashflow pressures are unlikely to resolve.
Indus Towers share was trading flat on the exchanges today at noon.
