Indus Towers eyes improved cash flows amid better collections from Vodafone Idea

Indus Towers, India's leading telecom tower provider, is anticipating a boost in free cash flows due to an expected rise in co-locations from Vodafone Idea and improved collection of past dues from the carrier. This financial strengthening could give the company the flexibility to consider additional share buybacks later this year.

“We have made collections against the past overdue for the third consecutive quarter from a major customer while sustaining 100% collection against the monthly billings,” said managing director and chief executive Prachur Sah, referring to Vodafone Idea, but not naming the company.

The management mentioned that they anticipate payments of outstanding dues to stabilize in the coming months as the Aditya Birla Group-backed carrier secures funding through equity and debt to support its network expansion. However, they did not specify an exact timeline. 

"We’ve seen good progress in the last quarter. I think we expect to gain more momentum in the coming quarter and we hope to monetize as quickly as possible," Sah said.

Indus Towers has opted for a share buyback worth ₹2,640 crore to distribute returns to shareholders in a tax-efficient manner, particularly ahead of the upcoming tax regime change on 1 October. This decision follows two years without issuing dividends, as highlighted by top executives during the post-results earnings call on Wednesday.

“There is more confidence in our free cash flow generation going forward, our dividend policy continues to be linked to free cash flow, so at the end of the year, we will continue to assess our free cash flow situation, and if situation permits, then there is the possibility of considering buyback again,” said chief financial officer Vikas Poddar.

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Starting 1 October, the Union budget has proposed that companies will no longer pay tax on the buyback of shares. Instead, the amount received from the buyback will be treated as a dividend in the hands of shareholders and taxed at the applicable slab rate for individual shareholders. Companies cannot claim any expenditure against the amount of buyback treated as a dividend.

“We do see buyback as a tax efficient way of disputing cash for a large group of our shareholders, especially in the current tax regime,” Poddar added.

On Tuesday, Indus Towers announced the share buyback, representing a 2.107% stake in the company, at a price of ₹465 apiece. Bharti Airtel, one of its promoters, has said it will not participate in the buyback, while the other promoter, Vodafone Group Plc, which holds a 3.1% stake, may participate.

Sah noted that Vodafone Group Plc remains a promoter with low shareholding per the shareholder agreement, but their final position will be known after the buyback offer closes next month. Vodafone recently sold an 18% stake in the company for ₹15,300 crore through a block deal, using the proceeds to pay lenders.

Vodafone Group Plc is also a promoter in Vodafone Idea, which owes Indus Towers an estimated ₹10,000 crore in past dues. The tower provider stated that Vodafone Idea has been fully paying current dues on a monthly basis since January 2023, and a payment plan for the past dues is under discussion.

“Our trade receivables decreased by ₹760 crore, primarily due to better collections. We continue to engage with our major customers to finalize a payment plan, and are seeing a regular collection of past overdues. We're also having positive discussions with the customer on participating in the network expansion plan following its fundraising, and expect to see co-location additions this year,” Poddar added.

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Indus Towers has over 192,874 towers and 342,831 co-locations, commanding a 45-50% market share in India. The company reported a consolidated 43% increase in net profit to ₹1,926 crore for the quarter ended June 2024. Revenue rose 4.3% year-on-year to ₹7,383 crore, with earnings before interest, tax, depreciation, and amortization (Ebitda) increasing by 29.4% year-on-year to ₹4,545 crore.