Indus Towers' revenues hinge more on Vi turnaround than Africa plan

Indus Towers eyes Africa entry but analysts remain split on growth outlook as Vodafone Idea's turnaround and high capex weigh on sentiment

On September 2, Indus Towers’ board of directors approved a foray into Africa, beginning with Nigeria, Uganda and Zambia. The telecommunication infrastructure firm will also look for opportunities in other African markets. 

 

Even as the Bharti Group owns a little over 50 per cent stake in Indus Towers, its revenue growth hinges on Vodafone Idea’s turnaround. 

 

Airtel Africa has 37,579 towers, of which 2,157 are owned by parent Bharti Airtel. The three countries mentioned above account for less than 500 of Airtel Africa’s towers. The Africa plan is not significant in the short-term. The continent has suffered currency depreciation and its tower companies trade at discounted valuations to global peers. Further details on the African strategy, such as allotment of capital, timelines, etc., are awaited. 

 

Indus Towers is the largest listed telecom tower company in India. Typically, tower businesses are like annuities with stable cash flows. But consolidation, following the entry of Jio in 2016, hurt such companies as the number of telecom service providers declined.

 

Tower companies operate with high leverage. Indus Towers’ net debt, including lease liabilities, is ₹16,700 crore. The net cash held is ₹2,460 crore. The recent deal to buy 12,272 towers for ₹2,000 crore from Bharti Airtel was funded via cash from the balance sheet. 

 

Dividend payouts have been deferred in order to conserve cash in the short term. The board will reassess this move by the end of FY26 and is committed to eventual reinstatement of dividends.

 

Bharti Airtel and VIL are anchor tenants for Indus Towers’ 226,000 tower portfolio, in addition to some business from Jio. The company has benefited from the 5G network rollout by Bharti Airtel as its base transceiver stations have grown 85 per cent in three years. 

 

Indus Towers’ second-largest tenant, Vodafone Idea (VIL), has been under severe financial pressure and was unable to pay dues in full. But VIL raised $2.4 billion in equity in FY25, and this led to payment of some dues. 

 

If VIL succeeds in its planned debt fund raising and wins relief in its outstanding adjusted gross revenue (AGR) dues, this would be a big boost. Indus Towers’ growth will accelerate as VIL rolls out 5G and 4G. A potential Nxtra data centre merger could also energise the stock.

 

Indus Towers’ Q1FY26 results saw rental revenue and EBITDA slightly below consensus, while capex was higher. Investors were disappointed by the decision to avoid dividends, even as tower additions are set to moderate in FY26, and the VIL receivables issue seems to have been addressed.

 

The firm saw 10.1 per cent year-on-year (YoY) growth in rental revenue in Q1FY26. Organic tower additions slowed from 4,300 in Q4FY25 to 2,500 in Q1FY26, as Airtel’s rural expansion was largely completed. However, management said that tower additions would remain robust in FY26, not significantly slower than FY25 with softness in Q1 due to seasonal factors. Co-location additions were healthy, due to network investments by VIL.

 

EBITDA (adjusted for provision reversal) was lower than consensus due to unseasonal weather, which led to higher energy costs as diesel consumption rose 10 per cent YoY. The adjusted EBITDA growth stood at 13.6 per cent and free cash flow of ₹1,570 crore was supported by receivables collection.  

 

Indus Towers continues to collect dues from VIL. Capex inched up YoY to ₹1,950 crore in Q1FY26. Maintenance capex may be elevated for the next 3-4 years, due to ageing infrastructure and battery replacements. This is partly offset by a decline in cost of capital.

 

While Bharti remains the largest tenant and is also the promoter, the fate of Indus Towers is strongly tied to a turnaround of VIL. If VIL does raise enough debt to carry out a 5G rollout, it may lead to accelerated revenue growth for the tower firm. Moderation in capex is also a positive. But if VIL continues to lose subscribers, and is unable to raise debt, Indus Towers could struggle to grow.

 

Management remains confident of growth. The high maintenance capex is expected to normalise over time. Green initiatives continue with over 32,000 solar sites live, and over 2,200 added in Q1. While analysts remain divided on the stock, target prices and valuations have been reduced.

 

According to Bloomberg, seven of the 14 analysts polled since the start of August are bullish, while five are bearish and two are neutral on the stock. Their average one-year target price is ₹406.21. The stock closed up 4.1 per cent at ₹337.30 apiece on the BSE on Friday.