Neutral Indus Towers for the Target Rs 435 by Motilal Oswal Financial Services Ltd
Vi’s fundraise and RJio’s tenancy renewals remain key monitorables
* Indus Towers’ (Indus) 1QFY27 was slightly weaker than our estimates, with recurring EBITDA (excl. provisions) rising 1% QoQ to INR45b, largely due to higher under-recoveries and marginally lower ARPT (flat QoQ).
* Operationally, tower and tenancy additions moderated QoQ due to manufacturing constraints imposed by the West Asia conflict during 1Q.
* Management indicated that constraints have eased and the order book visibility remains robust for the next 3-4 quarters, driven by network buildout as well as movement of expiring tenancies from other towercos.
* Capex moderated 26% QoQ (in line with moderation in tower additions), leading to healthy FCF generation of INR14.4b in 1Q (vs. ~INR38b in FY26).
* Delays in Vi’s potential fundraise could weigh on tenancy additions (currently bake in ~30k/~50k tenancies/5G loadings from Vi over FY26-29), while there is a risk of RJio’s tenancy exits (bake in ~5k exits from RJio in 2HFY27, which is ~10% of its overall portfolio with Indus).
* We fine-tune our estimates and build in a CAGR of 4-5% in revenue/preIND AS EBITDA/adj. PAT over FY26-29E.
* We reiterate our Neutral rating with a revised DCF-based TP of INR435, premised on 6.4x Sep’28E pre-IND AS EV/EBITDA. We believe the riskreward remains balanced after the recent correction in its stock price.
Slightly weaker 1Q; energy under-recoveries higher, ARPT lower
* Tower additions moderated QoQ to ~3.1k (vs. ~4.9k in 4Q, though ahead of our est. of 2.5k), while tenancy additions remained higher than tower adds at ~4.2k (though witnessed moderation from ~6.1k QoQ and our est. of 5k).
* Reported average revenue per tenant (ARPT) was stable QoQ at INR41.1k (flat YoY, slightly below our estimate of INR41.6k).
* Consolidated revenue grew 4% QoQ to INR84.3b (+5% YoY), as service revenue grew 1.2% QoQ (+5% YoY), and energy reimbursements rose ~10% QoQ (+4% YoY) due to higher diesel prices and seasonality.
* Reported EBITDA inched up 1% QoQ to INR44.8b (+3% YoY) and was ~2% below our estimate due to higher energy under-recovery and lower ARPT.
* Adjusted service EBITDA at INR46.4b (+2.3% QoQ, +6% YoY) was ~1% below our estimate, largely due to weaker ARPT.
* Energy under-recovery was higher at ~INR1.4b (vs. our estimate and YoY under-recovery of INR1.25b).
* Indus reported a bad debt provision of INR233m in 1Q (vs. INR153m QoQ, our est. of NIL and reversal of INR0.9b YoY).
* Adjusted for bad debt provisions, recurring EBITDA at INR45b (+1% QoQ, +6% YoY) was slightly weaker than our estimate of INR45.6b.
* Reported PAT declined 3% QoQ to INR17.5b (+5.5% YoY). Adjusted PAT also declined 3% QoQ to INR17.6b (+6% YoY), ~5% below our estimate.
Valuation and view
* Delays in VI’s potential fundraise could weigh on tenancy additions (currently bake in ~30k/~50k tenancies/5G loadings from Vi over FY26-29), while there is a risk of RJio’s tenancy exits (bake in ~5k exits from RJio in 2HFY27, which is ~10% of its overall portfolio with Indus).
* We fine-tune our estimates and build in a CAGR of ~4-5% in revenue/pre-IND AS EBITDA/adj. PAT over FY26-29E.
* We reiterate our Neutral rating with a revised DCF-based TP of INR435 (earlier INR440), premised on 6.4x Sep’28E pre-IND AS EV/EBITDA. We believe the riskreward remains balanced after the recent correction in the stock price.
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