Sell Indus Tower; target of Rs 260: ICICI Securities

ICICI Securitie's research report on Indus Tower

Indus’ capex intensity will likely remain elevated for FY25E and FY26E due to higher tower rollout, strong tenancy addition and rising loading. The company has, in the past, reduced capex per tower factoring in lower tenancy addition; therefore, we expect VIL’s tenancy growth to fuel capex for Indus with investments in power back-up and reinforcing tower strength. We estimate capex intensity at 45% and 32% of revenue for FY25E and FY26E, respectively. This means capex will likely remain elevated for Indus at INR 70–90bn p.a., which will likely restrict FCF generation. Capex intensity is only expected moderate from FY27E when growth tapers.

Outlook

Our valuation for Indus now bakes in the VIL capex. Our recalibrated model envisions Indus’ rental revenue/EBITDA/ net profit CAGRs of 9.3%/10.2%/14.4% over FY24–27E. That said, EPS growth will likely plummet to mid-single-digits soon after, succumbing to a more mature tower industry, which will entail incremental requirements drying up and offering limited growth opportunities. We see Indus’ FCF generation and dividend story taking shape FY27E onwards. We lower WACC and lift the terminal growth rate for Indus – implies restoring VIL’s going concern status that is yet to be established. Our DCF-based TP is now INR 260 (earlier INR 200); however, CMP implies earnings growth of 10% over FY24E–31E – a stretched assumption. Downgrade to SELL (from Reduce).

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