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Indus Towers, a leading tower company, announced its decision to undertake a share buyback program worth Rs 2,640 crore. This move is driven by the company's optimistic outlook on its free cash flow and the recent changes in the tax regime pertaining to buybacks. The company, which had been unable to distribute dividends to its shareholders for the past two years, sees the buyback as a tax-efficient way of distributing cash to its investors.
The confidence in improved free cash flows stems from the fact that Vodafone Idea, one of Indus Towers' largest clients, has started clearing past dues and making timely monthly payments. This positive development bodes well for the company's financial health and its ability to generate higher cash flows in the future. The buyback program will be implemented through a tender offer, where shareholders can choose to sell their shares back to the company at a predetermined price.
The recent changes in the tax regime for buybacks effective from October 1st have further incentivized this move. The new regulations dictate that the entire amount received by shareholders from buyback transactions will be taxed like dividends, based on their respective tax slabs. Previously, the tax burden for buybacks was borne by the companies themselves. This shift in taxation makes the buyback a more attractive proposition for shareholders, as they now enjoy a greater portion of the proceeds.
Indus Towers' decision to buyback shares demonstrates its commitment to rewarding its shareholders and maximizing their value. The buyback is expected to improve the company's financial ratios and help preserve its distributable reserves for potential future dividends. The company's confidence in its financial future is further strengthened by ongoing discussions with Vodafone Idea regarding a final payment plan for the remaining past dues and network expansion plans.
Despite the challenges posed by Vodafone Idea in the past, Indus Towers has shown resilience and a strong track record of revenue growth and profitability. The company's strategic focus on increasing tower tenancy ratio, which measures the number of tenants on a tower, has been instrumental in driving its revenue growth. With a tower tenancy ratio of 1.66, Indus Towers is well-positioned to capitalize on the growing demand for telecommunications services in India.
The share buyback program is a testament to Indus Towers' commitment to its shareholders and its strong belief in its long-term prospects. The company's financial performance, coupled with the positive developments in the telecom sector, suggest that the buyback program could be a lucrative opportunity for shareholders. However, investors should carefully consider their individual financial circumstances and investment goals before making any decisions.
Source: Tax regime change, good cashflow reasons for Rs 2,600 crore share buyback, says Indus Towers