Indus Towers faces Vi funding and RJio renewal risks despite healthy order book

Investment View and Valuation

Motilal Oswal Financial Services Limited retains a Neutral rating on Indus Towers following its Q1 FY27 results. The broker considers the risk-reward balanced after the share-price correction. Vodafone Idea’s potential fundraise and Reliance Jio tenancy renewals remain the key variables for the investment case.

The revised target price is Rs 435, reduced from Rs 440, based on a DCF valuation. The valuation uses an 11.5% discount rate and implies 6.4 times September 2028E pre-Ind AS 116 EV/EBITDA. The target includes dividends and represents 14% upside to the report CMP of Rs 381.

Q1 FY27 Financial Performance

Indus Towers reported consolidated revenue of Rs 8,431 crore in Q1 FY27, up 4.1% quarter-on-quarter and 4.6% year-on-year, broadly in line with Motilal Oswal’s estimate. Service revenue was Rs 5,377 crore, increasing 1.2% quarter-on-quarter and 5.2% year-on-year, but below the broker’s Rs 5,440 crore estimate. Better tenancy additions were partly offset by lower ARPT. Energy reimbursement rose 9.5% quarter-on-quarter to Rs 3,054 crore, reflecting higher diesel prices and seasonality.

Reported EBITDA was about 2% below the broker’s estimate because of higher energy under-recovery and lower ARPT. Energy under-recovery was approximately Rs 140 crore, compared with the broker’s and year-ago level of Rs 125 crore. The company also booked a bad-debt provision of Rs 23 crore, versus Rs 15 crore in Q4 FY26; Motilal Oswal had assumed no provision.

Tower and Tenancy Trends

Net macro tower additions moderated to 3,097 in Q1 FY27 from 4,898 in Q4 FY26, although they exceeded Motilal Oswal’s estimate of 2,500. End-period macro towers reached approximately 267,600.

Net macro tenancy additions stood at 4,236. They were higher than tower additions for the ninth consecutive quarter, but declined from 6,192 in Q4 FY26 and were below the broker’s estimate of 5,000. Macro tenants reached approximately 432,300. The end-period tenancy ratio was stable at 1.62 times, while the incremental tenancy ratio was approximately 1.37 times.

Order Book and Management Outlook

Management said an early-Q1 supply disruption related to the West Asia conflict affected tower manufacturing. Suppliers have since reconfigured their processes, and the constraints are largely behind the company. Management indicated that the order book remains healthy, with visibility for the next three to four quarters. This is supported by network expansion and the migration of expiring tenancies from other tower companies.

The Africa expansion remains on track. Approvals and operating licences have been received in Nigeria, Uganda and Zambia, orders have been secured from the anchor customer, and roll-outs are expected to start in the next quarter. Initial Africa capital expenditure is expected to be largely debt-funded.

Management expects greater use of solarisation, lithium-ion batteries and digital energy management to reduce diesel dependence and energy under-recoveries over time.

Cash Flow and Balance Sheet

Lower tower additions reduced capex by approximately 26% quarter-on-quarter to Rs 1,720 crore. Q1 FY27 free cash flow was Rs 1,440 crore. Net cash excluding lease liabilities increased by approximately Rs 1,490 crore quarter-on-quarter to about Rs 6,400 crore.

Receivables were broadly stable sequentially at Rs 4,930 crore, although they were Rs 560 crore higher year-on-year.

Estimates and Key Risks

Motilal Oswal fine-tuned its forecasts and now builds in a 4–5% CAGR in revenue, pre-Ind AS 116 EBITDA and adjusted PAT during FY26–FY29E. The broker reduced its FY27E and FY28E EBITDA estimates by 1.1% and 0.9%, respectively, and reduced recurring PAT estimates by 4.3% and 5.9%, respectively.

The broker’s assumptions include approximately 30,000 Vodafone Idea tenancies and 50,000 Vodafone Idea 5G loadings over FY26–FY29. Delays to Vodafone Idea’s fundraise could weaken tenancy additions. Motilal Oswal also assumes approximately 5,000 Reliance Jio tenancy exits in H2 FY27, representing about 10% of Reliance Jio’s Indus Towers portfolio.