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Indus Towers – No respite in headwinds

Updated: Sep 21, 2023

Company Name – Indus Towers Limited (Indus)

Current Share Price – INR 158 (June 5, 2023)

Market Cap – INR 42,486 cr


1. What is interesting about the stock?

Hey, did you know that the company that might own the telecom tower carrying your data or calls could be Indus? They're a Company that provides towers and stuff for wireless telecommunications service providers like Bharti Airtel, Vodafone Idea, and Reliance Jio.

What's interesting is that Indus has a pretty unique history. Back in 2006, Bharti Airtel, Idea Cellular, and Vodafone merged their tower companies in certain areas and formed Indus Towers. But, there were still some towers under their own companies, and some transactions happened too. Bharti Airtel listed its remaining tower company, Bharti Infratel, in 2013. Then later on, Vodafone merged with Idea Cellular, and all the tower portfolios were merged into Bharti Infratel (which is a listed company) in November 2020. Finally, Bharti Infratel changed its name to Indus Towers in December 2020. It's a bit of a complicated story, but it's pretty interesting!

Indus has c. 193,000 towers with c. 343,000 tenancies, implying a sharing factor (tenancy ratio) of 1.8x. The tenancy ratio is the average number of tenants on each tower – a higher number leads to better capital efficiency on both fixed and variable cost levels for the tower company (higher tenancy -> better profitability). Tenants are also sticky. Company has a strong balance sheet with a D/E ratio of 0.9x and RoE of 10% in FY23.

One of the key tenants is Vodafone Idea faces an existential threat with a high debt burden and telecom policy overhang (AGR and spectrum charges). If Vodafone India were to become insolvent, India (with its large population) would be left with 2.5 players (Jio, Airtel, BSNL/MTNL) which can have long-term implications. Telecom has become a core infrastructure with high penetration of mobile phones powering digital services. This has forced the Government to relook at the telecom policy to make it more conducive for the industry.

The government eased the overhang by offering a four-year moratorium on AGR and spectrum repayments which will provide an INR 25,000 cr annual cashflow relief to Vodafone Idea and improve its chances of surviving for longer. In January 2022, Vodafone Idea opted to convert its interest on spectrum installments and AGR dues to Government equity by exercising the option offered by the Government in the relief package. The conversion, earlier this year, resulted in the dilution of all the existing shareholders of the Company, including the promoters. Following conversion, the Government of India held around 33.4% of the total outstanding shares of Vodafone Idea which is higher than both promoters (Vodafone UK and Aditya Birla Group). Even after the conversion, there is a lack of clarity in future fundraising, and Company is falling behind its competitors like Jio and Airtel as they are spending on 5G.

Shareholding of Indus Towers is:

  • Bharti Airtel - 47.95%

  • Vodafone - 21.05%

In the next few years, I expect Vodafone to keep selling its stake in Indus to fund the operations of Vodafone Idea.

We had 5G auctions - this would mean more tenants for tower companies, as the new sites can carry more data with higher frequency waves, albeit with a shorter range.

On another note, have you come across the Internet of Things? It's quite fascinating - everything would be connected to a wireless 4G/5G network, even vehicles equipped with SIM cards! Growth drivers for the telecom industry - for tower companies? May be..

The management team is anticipating a 5-10% increase in revenue for towers that install 5G BTS!

Strengths and Weaknesses of Indus

Key strengths of Indus are:

  • High tenancy ratio – 1.8x vs 1.4x (national average)

  • Marquee shareholders like Bharti, Vodafone

  • Experienced management team

  • Strong balance sheet – D/E ratio of c. 0.9x in a business with annuity cashflows.

Key weaknesses of Indus are:

  • Cash flow fluctuation - The company did not pay dividends in FY23

  • Dependence on 2 or 3 tenants increases concentration risk (a weak tenant like Vodafone Idea has led to receivables getting stretched)

  • Fuel price risk – As the towers are powered by generators still and the fuel is a pass-through item in most contracts, there might be volatility and an inability to fully pass the higher fuel (oil) price to the tenants

2. Key Historical Financials

  • Indus started providing for increased receivables from Vodafone Idea in FY23 impacting the EBITDA and net profit for the last 4 quarters

  • Company has had a tough Q4FY23 with revenue and net profit falling 5% and 23% respectively on a YoY basis

  • Cash flow conversion (CFO/EBITDA) has been poor at 82% due to an increase in receivables from Vodafone Idea

  • D/E ratio is at 0.9x which is quite low for a tower company (quite stable revenue due to long-term agreements)

  • ROE/ROCE fell to 9%/11%

3. What is my view on company valuation?

Indus currently trades at an EV/EBITDA (TTM annualized) ratio of c. 6x and a P/E (TTM annualized) ratio of c. 19x.

Listed comparable in the US – American Tower Company and Crown Castle trade at PE (TTM) multiple of 25-30x.

Reliance Jio has sold its tower business (c. 175,000 towers with nearly 1.0x tenancy) to Brookfield at an enterprise value of USD 8 billion. Using this benchmark and adjusting for the higher tenancy factor at Indus (1.8 times due to higher tenancy), the enterprise value of Indus Tower comes to around USD 14.4 billion or INR 110,000 cr (vs current market level of INR 43,000 cr).

Company is trading at a discount to international peers and comparable transactions. However, the valuation could continue at these levels till the Vodafone Idea issue is resolved in its entirety providing clarity on Company's receivables and future cash flows. So, it may be prudent for long-term investors to evaluate investing after that event.

Indus also faces challenges in terms of lack of long-term growth. Hence, a high cash flow yielding asset like this may be more suited as an Investment Trust or REIT-like structure.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Concentration risk will remain in the foreseeable future – 2/3 of telecom players will dominate the Indian market

  • 5G technology deployment could get delayed – currently expected in the next 2/3 years

About the Author

I have over 17 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have the stock, option, or similar derivative position in the companies mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


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