Kolkata: Indus Towers suffered a Rs 708 crore net loss in the fiscal third quarter—compared to a Rs 1,571 crore net profit a year ago—after being compelled to make a hefty Rs 2,298.1 crore provision towards doubtful debt in the October-December period after a key customer, believed to be Vodafone Idea (Vi), warned of likely challenges in meeting future payment commitments.
“The funding plan of the said customer (read: Vi) has nor materialised, and although the committed part payment till December (2022) has been received, the customer has indicated challenges in complying with higher payment plan in future,” Indus said in its earnings statement.
As a result, India’s largest telecom tower company has followed a stringent policy for making a doubtful debt allowance in respect of its overdue receivables. The additional Rs 2,298.1 crore provision towards doubtful debt in the December quarter reflects a near 30% jump sequentially. The tower company had made a Rs 1,770.9 crore provision towards doubtful debt in the fiscal second quarter.
“Our financial performance remains impacted as we have adopted stringent accounting practices amid persistent shortfall in collections,” Indus MD Prachur Sah said in the earnings statement Tuesday.
The company’s stock closed 1.3% lower at Rs 170.50 on the BSE Tuesday. Results were declared after market hours.
Vi recently gave a commitment to Indus to pay 100% of its current dues from January onwards, and also clear its outstanding as of December 31, 2022, over seven months, starting this month. Vi, though, has made the required part-payment till December 2022.
Brokerage Kotak recently estimated that Vi’s total dues to Indus are at Rs 7,500 crore. Industry executives estimate that Vi’s monthly dues to the tower company are upwards of Rs 300 crore.
Indus’s consolidated revenue for the October-December period stood at Rs 6,765 crore, down 2% on-year, while consolidated earnings before interest tax depreciation & amortization (EBITDA) plunged a whopping 68% on-year to Rs 1,186 crore, amid Vi’s continuing challenges in meeting its dues. Free cash flow in the December quarter was a negative Rs 621 crore.
In its earnings statement for the December quarter, Indus also warned that the potential loss of a “significant customer” if it fails to continue as a going concern or Indus’s failure to get new clients could have an adverse effect on the tower company’s business, results of operations and financial conditions.
According to analysts, the health of loss-making Vi is vital for Indus’ financial stability, and in turn, Bharti Airtel’s stock too. Vi accounts for over 40% of Indus revenue. Kotak estimates that as much as 10% of the tower company’s annual overall revenue could be at risk due to Vi’s cash shortfall.
But following the committed part payment by Vi till December, Indus’s trade receivables have shrunk by over 22% sequentially in the fiscal third quarter to Rs 5,062.4 crore.
In the fiscal third quarter, Indus added net 1,466 towers on-quarter and 4,644 on-year across 22 telecom circles in India. Co-locations increased 1,307 sequentially and 4,329 year-on-year. Co-locations are points where a tower company deploys mobile telecom antennae of multiple carriers on a single structure.
As of December 31, Indus owned and operated 189,392 towers with 339,435 co-locations across India.
ET had reported in its January 6 edition that Vi could face stern action from Indus if it fails to meet the current payment timelines, starting from January. Industry executives had said things could even escalate if Vi doesn’t pay up, and stronger measures to recover its dues may be discussed.
Vi’s efforts to raise around Rs 20,000 crore via a mix of debt and equity have also been unsuccessful for over a year now. The telco had recently sounded out banks to raise around Rs 7,000 crore to clear a bulk of Indus dues.
Vi’s lenders, though, want clarity on the government’s potential shareholding in the telco besides its promoters’ plans to infuse equity to shore up investor confidence.