Jefferies on Friday reiterated its 'buy' rating on Indus Towers but lowered its target price by 8.5 percent. The brokerage brought down the target price to Rs 295 from Rs 320, and said it finds the risk-reward in the stock attractive after a steep correction.

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Vodafone Plc's move to sell its entire stake in Indus Towers to infuse cash in Vodafone Idea may be an overhang for Indus shares in the near term, Jefferies said in a research report. However, it is likely to improve Indus Towers' growth and cash flow outlook in the long term, the brokerage added.

As Vodafone Idea’s deadline to raise funds from external sources nears, Vodafone Group has said that it is in discussions to sell around five percent in Indus Towers.

"With the (Indus Towers) stock trading at an undemanding 5x EV/Ebitda and offering 8-10 percent dividend yield, we believe risk-reward is favourable," Jefferies said.

It also mentioned that nearly one-third of Indus Towers' tenancies are up for renewals in 2022 wherein the terms may be renegotiated. "Historically, Indus Towers has offered a freeze on rental escalations for a few years instead of

an upfront discount," according to the brokerage.

Jefferies said that since a peak in September 2021, the Indus stock's underperformance to the Nifty50 benchmark is due to two key concerns:

VIL's cashflow pressures have led to a subpar tenancy growth outlook and more recently deteriorating cashflow conversion due to rising receivables

The imminent renegotiation of tower rentals with Vodafone Idea and Bharti Airtel.

Vodafone Idea's improved cash flow situation will in turn help in lowering the dues to Indus, Jefferies added.

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(Edited by : Akanksha Upadhyay)

First Published:Feb 25, 2022 11:21 AM IST