Indus Towers Set To Gain If Telecom Firms Get Relief In AGR Matter, Says Citi

Bharti Airtel would also benefit from any relief, albeit to a more modest extent (4-5% of market capitalisation.)

<div class="paragraphs"><p>(Source: Freepik)</p></div>
(Source: Freepik)

Indus Towers is the "best proxy play" if the Supreme Court grants any relief to telecom companies in the adjusted gross revenue case, according to Citi Equity Research.

The brokerage has a 'positive catalyst watch' on Indus Towers with a target price of Rs 265 apiece, an upside of 17% from the last closing price.

The target price, according to Citi, is based on 6x FY26E EV/Ebitda, below its long-term trading mean given uncertainties pertaining to further exits by Vodafone Idea. "This is, however, in line with the implied valuation at which Brookfield has acquired American Tower’s India operations."

Vodafone Idea’s senior counsel, Harish Salve, has reportedly asked the Supreme Court for an early hearing of the curative petition it filed in October 2023 for correcting arithmetic errors that it claims were made in the computation of the AGR dues and seeking a waiver of interest and penalties imposed.

While it is "undoubtedly hard to predict the final outcome of this, further developments will be key to monitor given the significance it holds for Vodafone Idea, as 32% of its total December 2023 debt of Rs 2.15 trillion (Rs 2.15 lakh crore) comprises AGR dues," it said.

The brokerage also maintains a 'buy' on Bharti Airtel with a target price of Rs 1,305 apiece and a 'neutral' on Reliance Industries Ltd. with a target price of Rs 2,910 apiece.

Other Highlights

  • Past rulings in the AGR case suggest that any relief for the telcos still remains a less likely outcome.

  • Bharti Airtel would also benefit from any relief, albeit to a more modest extent (4-5% of market capitalisation).

  • This has no implications for Reliance Jio.

  • Key downside risks for shares of Indus Towers include higher-than-expected further tenancy exits by Vodafone Idea or a further deterioration in its receivable situation, lower-than-expected gross tenancy adds by other operators, and the impact of competition.

  • Citi has a 'Neutral' rating on Vodafone Idea and has not assigned a target price.

  • Vodafone Idea stated in March 2020 that its AGR dues as per its self-assessment were Rs 21,500 crore, compared with the demand of Rs 58,300 crore that was raised by the Department of Telecom.

  • Vodafone Idea has already paid Rs 7,900 crore thus far, which covers the full principal amount of its self-assessed dues.

  • The difference equates to 20–25% of Vodafone Idea’s total debt (AGR dues constitute 32% of its total debt).

Of the 23 analysts tracking Indus Towers, 10 maintain a 'buy' rating, six maintain a 'hold', and seven suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies a upside of 1%.

The stock was trading 3.8% lower at Rs 217.55 apiece as of 10:23 a.m., against 0.57% decline in the benchmark NSE Nifty 50.

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