2023 has been off to an awful start for Indus Towers as the company’s stock has lost 28.5% in the first 3 weeks of the year itself!

2022 started off well for the stock as it recovered a vital resistance level shortly after the year began. The stock was range-bound until February but tanked over 18% in a single day in late February when Vodafone UK sold over 7 crore shares to Airtel in a block deal, forcing the share to touch price levels it hadn’t touched for over 6 months!

For the next few months, the stock remained stuck between the bulls and bears. Bulls had managed to drive the stock up but bears overpowered the bulls and drove the stock down as it lost 11.3% in a month. However, signs of recovery were visible after the company published its Q4FY22 results.

The company reported a 34.8% growth in consolidated net profit, reaching Rs 1,828.50 crores, while the revenues of the company reached Rs 7,225.30 crores, up 9.99% YoY. The positive results revitalized the interest of the investors as buying resumed once again. In 2 months, the stock had breached 2 resistance levels and was trading in the range of Rs 220-230 per share.

However, buyers lost interest after the company published its Q1FY23 numbers. Despite witnessing a 1.5% YoY growth in revenues and a 62.6% surge in other income, the company’s EBITDA fell 34.2%, EBITDA margin had seen a decline of over 1800bps. EBIT had fallen 58% YoY while profit was down 65.7% YoY!! Operating expenses had risen in line with the revenues.

The main cause of the decline was a Provision for Doubtful Debts worth Rs 1,232.6 crores which the company had created for a ‘Customer’ whose repayment ability was under question at the time. This sent investors on a selling spree as the stock fell 4% and below its support at Rs 220.55!

Following that, the stock lost another 6%, causing the stock to fall through another key support level. Following that, the stock was range-bound for 5 months, as neither the buyers nor the sellers were able to break the stalemate.

Having declined 18.8% in 2022, the stock was expected to stay range bound for the next few months. January started off the same, but the results for Q3FY23 finally brought an end to the 5-month tie with the sellers emerging victorious. 

On 16th January 2023, the stock finally broke through its key support level at Rs 183.05 per share when it was revealed anonymously that the company could create even greater provisions. After the results confirmed the rumors, the stock fell through 3 support levels and lost 26% of its value in less than 10 trading sessions!!

What’s the future outlook?

Fundamentally, the latest results of the company was not so good. It had a loss of Rs 708 crores as opposed to the net profit of Rs 1,571 crores reported in the corresponding quarter in 2021. This was on account of a massive Rs 2,298.1 crore provision the company had to make on account of doubtful nature of Vodafone Idea, its greatest debtor. Collections were severely affected during the quarter which compelled the company to make the provisions. Consolidated revenues declined 2% YoY, EBITDA plunged 68% YoY while free cash flows were a negative Rs 621 crores for the quarter.

Technically, the stock is trading below its 5,20,50,100, and 200-day moving averages. Moreover, the RSI of the stock is currently at 10.80, meaning that the stock is well oversold. An oversold condition means that the stock is currently available for cheap and buyers can open a long position while anticipating a reversal in the stock’s price. Generally, when a stock breaches into the Oversold zone, buyers rush in to buy the stock.

However, the same is questionable in the case of Indus Towers. Vodafone Idea’s inability to make payments to the company, which caused Indus Towers to verbally threaten it twice, is the reason for the weakness in the stock. In Q3FY23, a net profit of Rs 1,590 was converted to a loss of Rs 708 crores due to Vodafone Idea’s doubtful ability to pay.

Moreover, terminating its services to Vodafone Idea is not a viable idea since the latter is a major customer for the Tower operator. Therefore, the only option available to Indus Towers is to wait for Vodafone Idea to raise funds and discuss payment plans with it which would be beneficial to both businesses.