Indus Towers’ Achilles heel to get less sore with Vodafone Plc’s stake sale
Indus Towers Ltd is set to get some relief from Vodafone Plc’s announcement that it will sell its stake of 3% in the company. Out of the estimated proceeds worth ₹2,800 crore, an amount of ₹1,900 crore would be used to repay Vodafone Idea Ltd’s (Vi) past dues to Indus, which stood at ₹3,500 crore in September.
There could be a sharp rise in the dividend as well. The development can boost Indus’s FY25 free cash flow (FCF) to ₹6,200 crore, said IIFL Securities Ltd, adding that the tower company has a payout policy of 100% of FCF, implying a potential dividend of ₹3,600 crore for the rest of FY25.
Indus owned and operated nearly 230,000 towers at September end, with an average tenancy ratio of 1.65. Vi accounts for 32% of Indus’s tenancy but had been facing cashflow issues until a few quarters ago, leading to a pileup of past dues. The reduction in past dues could also help Vi in its efforts to raise debt for its expansion plan, which, in turn, also means a better growth outlook for Indus.
Vi debt raising is key
Much depends on Vi’s debt raising, which should become easier with the company’s announcement today that it is raising ₹1,980 crore through the issue of fresh shares. IIFL’s December 2025 target price for Indus is ₹445 that assumes successful debt raising by Vi. But if Vi’s debt raising fails to materialize and it is forced to cut its capex programme, IIFL’s target price will fall to ₹380, said the analysts in a 5 December report.
After rallying about 80% so far in 2024, Indus’s shares now trade at about ₹362 apiece. Investors have been excited about the improving FCF outlook. Note that Indus completed ₹2,600 crore share buyback in the September quarter (Q2FY25). According to Bloomberg data, the stock trades at an enterprise value of 6.7x its FY26 estimated Ebitda, which seems pricey. Vi’s successful debt raising would be an important cue for investors. Ebitda is short for earnings before interest, taxes, depreciation, and amortization.
Meanwhile, the company has seen a moderation in its average revenue per tower (ARPT) in Q2FY25. The measure dropped 5% year-on-year. While the total number of towers rose by 12%, the number of tenants increased at a lower rate of 7%, implying lower revenue from newer towers, although projected to increase going forward.
“We expect our loading revenues to be gradually supplemented by a demand for new sites once a certain penetration level is achieved to aid the network decongestion,” the management said in its Q2FY25 earnings call. J.P. Morgan projects ARPT to grow 5% year-on-year in FY26 after falling by 3.6% in FY25.
