Buy Indus Towers Ltd for the Target Rs 475 by Emkay Global Financial Services Ltd
Indus Towers (Indus)’s 1QFY27 results were broadly in line with expectations, with both sustained tenancy addition and flat realizations resulting in 4.6% yoy revenue growth. EBITDA margin declined by 140bps qoq to 53.2% due to lower energy margin. Management highlighted the company’s strong order book and expects the tower addition to accelerate in coming quarter. On one hand, Vodafone Idea (VI)’s capex can accelerate Indus’s tenancy addition, while on the other, uncertainty of Reliance Jio (RJio)’s contract renewal can impact up to 15% of the revenue, in our view. Indus’s valuations at 6.4x/6.0x FY27E/FY28E EV/EBITDA remain at a discount to those of global peers. Given the lack of visibility on RJio’s contract renewal, we cut our TP by 12% to Rs475 from Rs540; maintain BUY on attractive valuations and strong cash generation.
In-line operational performance
Indus reported revenue of Rs84.3bn (up 4.6% yoy), 2.2% ahead of street estimates with steady tenancy addition (4,236 vs 6,192 in 4QFY26) and flat revenue per tenancy. Tenancy ratio was stable at 1.62x, while the company added 3,097 towers (vs 4,892 in 4QFY26), taking the total tower base to 267,611. Energy margin declined by 100bps qoq to 4.6% due to seasonality and settlement timing. EBITDA margin declined by 145bps qoq to 53.3% due to drop in both energy and core margins. Capex declined to Rs17.2bn (Rs23.3bn in 4QFY26), in line with the lower tower additions. FCF stood at Rs14.4bn (Rs11.1bn in 4QFY26). PAT declined 2.4% yoy to Rs17.5bn as a result of the base year seeing a Rs883mn reversal of provisions
Key tenant contract renewal overhang; Africa foray in progress
We see up to 15% revenue impact due to RJio’s decision not to renew its contract with Indus Towers. Considering the high operating leverage, the revenue loss would largely flow through to EBITDA. While Management stated the next 3-4-quarter orderbook is healthy, it did not give any specific details regarding renewal of the contract. Indus’s Africa foray is advancing per plan, with regulatory and operating licenses in place for all three countries. The company has secured orders from an anchor customer, initiated partner onboarding processes, and placed key supply orders. Rollouts are expected to commence from next quarter itself and capex will be largely debt-funded.
Outlook and valuations Steady growth, attractive valuations
We build in 4.5%/5.3% FY26-28E revenue/EBITDA CAGR for Indus. Indus’s valuations, at 6.4x/6.0x FY27E/FY28E EV/EBITDA, are at a significant discount to global peers. The company’s foray into Africa is on track and likely to drive growth in coming quarters. However, uncertainty on RJio’s contract renewal remains a key overhang for the company. Hence, we reduce our target multiple to 7x from 8x earlier, and roll forward to 1QFY29E TTM EV/EBITDA. We maintain BUY on the stock while cutting our TP by 12% to Rs475.
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