25 Feb , 2022 By : Kanchan Joshi
Vodafone Plc's move to sell its entire stake in Indus Towers to infuse cash in Vodafone Idea may be a near-term overhang on Indus' stock but will improve its longterm growth and cashflow outlook, believes global brokerage Jefferies which sees the sharp correction in Indus Towers share price offering attractive risk reward.
Vodafone Plc, which owned 28.1% stake in Indus Towers, has announced its intent to sell entire stake in Indus Towers. Vodafone Plc has sold 2.4% stake through a book building offer and is in discussions with one of the largest shareholders in Indus Towers for sale of a further 4.7% stake. Besides this, it has also stated its intent to sell its 21% residual stake in Indus Towers and is in discussions with several interested parties.
“We believe risk reward is very favorable post the steep correction as the stock is factoring no rental escalation from the next renewal cycle and 130 basis points (bps) higher yields," the note added. The brokerage has a target price of Rs295 to factor 7% risk free rate and reiterates its Buy rating on Indus Tower.
Since its peak in September 21, Indus Towers' stock has fallen 35% and underperformed Nifty by 26% due to two key concerns, as per the Jefferies. First, VIL's cashflow pressures have led to a subpar tenancy growth outlook and more recently deteriorating cashflow conversion due to rising receivables. Second, the imminent renegotiation of tower rentals with Vodafone Idea and Bharti Airtel.
“The current move by Vodafone Plc will help improve the cashflow situation of VIL which in turn will help lower the receivables due from VIL and could also improve the longer term growth outlook for Indus," the note added.
Shares of Indus Towers surged over 7% in Friday's opening deals at Rs220 apiece on the BSE, after the stock closed about 18% lower on Thursday.
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