Company Update : Indus Towers by Motilal Oswal Financial Services Ltd
In line results; tower/tenancy additions moderate
* Indus’ 1QFY26 results were broadly in line with our estimates, with recurring EBITDA (excl. provision reversals) rising 4% QoQ to INR42.6b.
* Operationally, tower additions moderated QoQ likely due to tapering off rural rollouts by Bharti, while tenancy additions were resilient, primarily driven by continued rollouts by Vi.
* Indus generated FCF of INR15.7b in 1Q (INR98.5b in FY25). After adjusting the buyback in 1HFY25 and Bharti’s tower acquisition, we estimate Indus has FCF of ~INR59b (or ~INR22/share) for distribution. However, the decision on the mode of cash distribution to shareholders is still pending.
* Further, driven by the clearance of past dues by Vi, Indus’ financial position has improved significantly, with net cash (excl. leases) of ~INR25b and further moderation in receivables by ~INR4b QoQ to ~INR44b.
Adjusted for one-offs, core performance largely in line with our estimates
* Consolidated reported revenue was up ~4% QoQ at INR80.6b (+9% YoY) and was in line with our estimate.
* Service revenue at INR51b (+1% QoQ, +10% YoY) was ~2% below our estimate on account of lower tenancy additions and 2% QoQ decline in ARPT.
* Energy reimbursements at INR29.5b (+10% QoQ, +7% YoY) were ~4% ahead of our estimate due to higher energy costs.
* Consolidated reported EBITDA was up 0.5% QoQ at INR43.5b (-3% YoY, 2.5% ahead), largely due to prior-period provision reversals.
* Adjusted service EBITDA at INR43.8b (+3% QoQ, +12% YoY) was in line with our estimate.
* Energy spreads remained negative at INR1.2b (though lower vs. INR1.4b loss QoQ and our est. INR1.5b loss).
* Indus reversed bad debt provision of INR0.9b in 1QFY26 (vs. bad debt provision reversals of INR2.3b QoQ and INR7.6b YoY). We did not build in any bad debt provision reversal for 1QFY26.
* Adjusted for bad-debt provision reversals, recurring EBITDA at INR42.6b (+4% QoQ, +14% YoY) was in line with our estimate.
* Reported PAT at INR17.4b (-3% QoQ, -10% YoY) was ~5% ahead of our estimate, primarily due to prior-period provision reversals. Adjusted PAT was broadly in line with our estimate.
Tower/tenancy additions moderate QoQ; ARPT down ~2% QoQ
* Adjusted for Bharti’s tower acquisitions, net macro tower adds moderated further to 2,755 QoQ (lower vs. our estimate of 3,500 and 4,282 net adds in 4Q, adjusted for Bharti’s tower acquisitions); EoP macro tower count stood at ~251.8k.
* Similarly, adjusted for Bharti’s tower acquisitions, Indus added 104 net leaner towers QoQ (vs. 160 QoQ, excluding acquired towers), taking the overall leaner tower count to ~13.94k.
* For the fifth successive quarter, net macro tenancy additions were higher than tower adds at 6,064 (though lower vs. our estimate of 7,000; vs. 8,236 net adds in 4Q excluding acquisitions), taking total tenants to ~411.2k.
* Indus finally acquired ~10.1k macro towers (earlier reported 10.38k) and ~2.18k leaner towers (earlier reported 2.23k) from Bharti Airtel in 4QFY25.
* End-period tenancy ratio was stable QoQ at 1.63x, driven by robust ~2.3x incremental tenancy ratio.
* Reported sharing revenue per macro tenant (ARPT) declined ~2% QoQ to INR41.1k (flat YoY) and was 2% below our estimate (INR41.8k).
Other highlights: Receivables and capex moderate; net cash position strengthens with ~INR59b FCF potentially available for distribution
* Indus’ receivables declined by ~INR4b QoQ to INR43.6b. Indus also reversed ~INR0.9 in bad debt provisions, implying a net surplus collection of ~INR5b during 1QFY26.
* Over the past few quarters, Indus has recovered INR55.7b in past dues from Vi, with prior-period bad debt provisions now at modest ~INR2.1b (vs. INR3b/INR53.9b as of Mar’25/Mar’24).
* Capex moderated ~13% QoQ to INR19.5b (vs. INR22.4b QoQ), driven by muted tower additions.
* Reported adjusted fund from operations (EBITDA net of lease payment and maintenance capex) at INR28.4b was largely stable QoQ, lower YoY primarily due to lower prior-period provision reversals.
* Net debt, including lease liabilities, declined ~7% QoQ to INR167b (vs. ~INR180b QoQ). Excluding lease liabilities, the company’s net cash increased to ~INR24.6b (vs. ~INR8.7b net cash QoQ).
* Indus’ reported 1Q FCF stood at INR15.7b (vs. INR98.5b in FY25). We note that Indus had used ~INR27.5b for buyback and ~INR18b for acquiring Bharti’s towers in FY25. These leaves Indus with FCF of ~INR59b FCF (~INR22/share) for distribution to shareholders through either a dividend or a buyback.
* The decision on modalities of returning cash to the shareholders is yet to be firmed up.
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