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In-line 3Q; tenancy additions pick-up key monitorable

* Indus Towers’ (Indus) 3QFY26 was broadly in line with our estimates, with recurring EBITDA (excl. provision reversals) rising 2% QoQ to INR44.7b.

* Operationally, tenancy additions picked up QoQ (after a subdued 2Q), driven by acceleration in Vi’s rollouts during 3Q.

* While, optically Indus’ share of Vi’s new tenancy additions appears lower in 3Q, management indicated that certain new towers were also built for Vi and that Indus continues to garner a high share in its key customers’ rollouts. On our estimates, Indus has gained ~70% share of Vi’s rollouts since 2QFY25.

* Capex declined ~23% QoQ to INR20b (still elevated), while receivables inched up further ~INR4.5b, which led to modest FCF generation of ~INR8b in 3Q (and ~INR27b in 9MFY26 vs. ~INR98.5b in FY25).

* AGR relief for Vi and its updated capex plans (~INR450b over FY26-29) are positive for Indus. However, Vi’s capex plans remain contingent on expedited debt raise, frequent tariff hikes and relief on spectrum dues.

* Our FY26-28 estimates remain broadly unchanged. We continue to build in ~35k tenancies and ~50k 5G loadings from Vi over FY25-28. Further, we build in modest ~5k tenancy exits from RJio (~10% of the overall portfolio coming up for renewal in FY27-28), which could have downside risks.

* We reiterate our Neutral rating with a revised DCF-based TP of INR425, premised on 6.5x FY28E pre-IND AS EBITDA. The risk-reward appears fairly balanced at CMP (bull case: INR490; bear case: INR395).

In-line 3Q; recurring EBITDA +2% QoQ with pick-up in tenancy additions

* Tower additions moderated to 3.5k (vs. 4.3k QoQ, in line), while tenancy additions improved to ~6.1k (vs. 4.5k QoQ and our est. of 3.75k), driven by a pick-up in Vi's rollouts (added ~5.1k/6.6k overall/MBB towers QoQ).

* Reported average revenue per tenant (ARPT) at INR41.4k (flat YoY, our est. INR41.7k) declined ~1% QoQ (2Q had ~0.8% one-off boost). ? Consolidated revenue grew ~0.5% QoQ to INR81.5b (+8% YoY, 2% below), as modest ~0.6% QoQ service revenue growth was offset by 3% decline in energy reimbursements (+5% YoY).

* Consolidated reported EBITDA declined 2% QoQ to INR44.8b (-36% YoY, one-off in base quarters) and was in line with our estimates.

* Adjusted service EBITDA at INR45.5b (+1% QoQ, +13% YoY) was in line.

* Energy under-recovery was INR0.8b (vs. INR0.9b YoY, our est. INR0.75b).

* Adjusted for provision reversals (INR13m in 3Q vs. INR1.95b QoQ and INR30.2b YoY), recurring EBITDA at INR44.7b grew 2% QoQ/14% YoY and was in line.

* Reported PAT at INR17.8b declined 4% QoQ (-56% YoY), primarily due to prior-period provision reversals in base quarters. ? Adjusted for prior-period provisions, PAT at INR17.9b (+6% QoQ, +3% YoY) was broadly in line with our estimate.

Capex moderation partly offset by higher receivables; 9MFY26 FCF at ~INR27b

* Capex moderated ~23% QoQ (on a high base) to ~INR20b, which led to a slight pick-up in reported FCF to ~INR8b.

* However, 9MFY26 FCF remained relatively modest at ~INR26.5b (vs. INR98.5b in FY25) due to elevated capex (+40% YoY). ? Receivables increased further ~INR4.5b QoQ to ~INR53b (were up INR5b QoQ in 2Q), largely on account of timing mismatch.

* Net cash (excluding leases) improved to ~INR34.3b (vs. ~INR29.6b QoQ).

Key highlights from the management interaction

* Order book: Indus continues to garner a high share in its key customers’ rollouts. Management indicated that the order book remains healthy; however, the company is yet to receive detailed rollout plans from Vi, based on its recent revisions to capex guidance. Indus has also been gaining share from other tower cos through migration by key customers, driven by its superior cost efficiency and network uptime track-record.

* Higher tenancy exits in 3Q: Indus reported 611 tenancy exits in 3Q (vs. ~300 quarterly rate). Management indicated that some of these tenancy exits were due to the relocation of towers and did not pertain to one single customer.

* Africa foray: The company has made progress, with the establishment of a holdco in the UAE and operating companies in each geography. It is currently working on securing the licensing and regulatory approvals and is looking to demonstrate differentiation in overall capital and operating costs to create value for shareholders. Overall, the capex outlay is yet to be firmed up. The company currently focuses on greenfield expansion in Africa.

* High capex: The capex remains elevated owing to tower additions, investments in energy efficiency initiatives, creation of additional infrastructure to support second tenants on existing towers, and continued maintenance capex for strengthening the aging tower portfolio and battery replacements.

* Reinstatement of dividends: Management has reiterated the stance of considering shareholder returns with its 4QFY26 results, and remains committed to distributing surplus cash. The modalities of which would be evaluated holistically in light of recent changes in buyback taxation.

Valuation and view

* AGR relief for Vi and its updated capex plans (~INR450b over FY26-29) are positive for Indus. However, Vi’s capex plans remain contingent on of expedited debt raise, frequent tariff hikes and further relief on spectrum dues.

* Our FY26-28 estimates remain broadly unchanged. We continue to build in ~35k tenancies and ~50k 5G loadings from Vi over FY25-28. ? Further, we build in modest ~5k tenancy exits from RJio (~10% of the overall portfolio coming up for renewal in FY27-28), which could have downside risks.

* We reiterate our Neutral rating with a revised DCF-based TP of INR425 (earlier INR400), premised on 6.5x FY28E pre-IND AS EBITDA. The risk-reward appears fairly balanced at CMP (bull case: INR490; bear case: INR395).

* At CMP, the implied FY27E FCF yield is ~4.4%, which could have downside risks from Indus’ capex plans in Africa.

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