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Bad debt provisions for Indus Towers may rise on uncertain Voda Idea payment

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Indus Towers has signalled there may be further additions to its provisions for doubtful debt in coming quarters with no revised payment plan forthcoming from its key cash-strapped customer, believed to be Vodafone Idea (Vi).

At its quarterly earnings call on Wednesday, Indus’ top management said the company’s board is closely monitoring the struggling telco’s payment patterns, and would take appropriate action on the operations front if payments don’t materialise indefinitely.


Indus’ leadership team, though, did not spell out how long the company would wait or on the nature of potential action that the towerco's board would consider if Vi doesn’t meet its committed higher payment plan, effective January 2023.

Indus shares closed 7.36% lower at Rs 157.95 on BSE Wednesday, plunging nearly 9% intra-day amid worries around the tower company recovering its money from Vi.

Indus had to make a hefty Rs 2,298.1 crore provision towards doubtful debt in December quarter after Vi indicated likely challenges in meeting its future higher payment commitments from January. It also took an exceptional charge of Rs 493 crore (towards impairment of revenue equalisation reserve for Vi’s dues) amid uncertainty around collecting some long-term dues. These resulted in Indus reporting a Rs 708 crore net loss in the fiscal third quarter.

Industry executives and analysts, however, said Indus has multiple options to send a strong message to Vi to pay up, including reducing the towerco's services or even shutting down access to some towers, going forward, if dues collections from Vi don’t happen as per the mutually agreed plan.

“There may be more provisions in future… it entirely depends on how collections happen from this specific customer (read: Vi)… it has not shared any revised payment plan; so we expect the current payment plan (terms) to guide us,” Indus Towers CFO Vikas Poddar said at the tower company’s earnings call.

He added that the senior management is constantly discussing the situation, including contingency plans, with the Indus board, which would take appropriate action based on how the struggling customer (read: Vi) activates the higher payment plan.

“Implementation of the higher payment plan depends on the customer closing its pending fundraise… the situation is extremely dynamic, changing every week, and we will take guidance from the Indus board on specific future action,” Poddar said.

The hefty provisioning in the October-December period also triggered a 68% on-year fall in Indus’ consolidated earnings before interest, tax, depreciation & amortization (Ebitda) to Rs 1,186 crore.

Vi has committed to clear 100% of its current dues to Indus from January onwards, and also pay its outstanding as of December 31, 2022, over a seven month period, starting this month. Vi made the required part-payment till December 2022.

The CFO dismissed concerns around Indus potentially waiving off interest payments for Vi, saying the tower company had actually collected some interest on delayed payments from its cash-strapped customer.

Analysts, though, assert that the health of loss-making Vi is critical for Indus’ long-term financial stability. This, since Vi accounts for over 40% of Indus revenue. Kotak estimates that as much as 10% of the towerco’s annual overall revenue could be at risk due to Vi’s cash shortfall.

“Collection delays from Vi and Indus’s exposure as a service provider (35%+ revenues, in our view) remains the key area of concern… we remain watchful on the overall prospects until there is an improvement in dues collections from Vi, and seek clarity on Indus’s measure to collect it,” ICICI Direct said.

Brokerage Kotak has recently estimated Vi’s total dues to Indus at around Rs 7,500 crore. Industry executives, in turn, estimate that Vi’s monthly dues to the tower company are upwards of Rs 300 crore.

Vi’s efforts to raise around Rs 20,000 crore via a mix of debt and equity have also been unsuccessful for more than a year. It had recently sounded out banks to raise around Rs 7,000 crore to clear a bulk of Indus dues.

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