Indus Towers may benefit if Vodafone Idea gets money and invests: Analysts

Indus Towers, India's leading tower company, could post 8% compound annual growth rate in operating income through FY24-27 if key customer Vodafone Idea (Vi) closes its much-awaited Rs 45,000 crore fundraise on schedule and invests in network expansion, analysts said.

Cash-strapped Vi said it will open a sale of new shares on April 18 and close on April 22 to raise up to Rs 18,000 crore. This will be closely followed by a Rs 25,000-crore fundraising via debt. The company has already approved raising Rs 2,075 crore from a promoter entity through a preferential share issue.

"...we are enthused by progress on the (Vi) fund raise and believe this should drive further upside for Indus Towers," Citi Research said in a recent report.

Analysts added that if Vi uses the fresh capital to add around 75,000 sites to cover network gaps in its priority markets to compete effectively with bigger and financially-stronger rivals Reliance Jio and Bharti Airtel, it could lead to 40,000-45,000 tenancy additions for Indus.

"If Vi expands its network, Indus's growth outlook will improve. Assuming all the (new) tenancies are set up on its existing towers by FY26, then Indus would deliver a tower/tenancy CAGR of 6%/7% over FY24-27 and FCF (free cash flow) generation of Rs 20 per share in FY26 with a marginally better 3% CAGR in FCF over FY27-34," Jefferies said in a research note.

Vi's two-part fundraising plan through a mix of equity and debt is aimed at repaying dues to key vendors such as Indus, bolstering 4G operations and starting 5G services to intensify competition with Jio and Airtel.

Sector experts, however, pointed out that since the Indus stock has already rallied more than 60% since January, it has most likely fully captured the estimated 8% improvement in compounded Ebitda (read: operating income) growth over FY24-27 if Vi expands its mobile broadband network in coming months.

Lately, Vi has also started to partly clear its large dues to Indus, boosting the tower company's December quarter net profit. Citi Research recently estimated Vi's total dues to Indus at Rs 5,700 crore after the last round of payments.

In the immediate term, though, Emkay Research expects momentum in terms of Indus's tower and tenancy rollouts to have endured in the March quarter on the back of its biggest telco client, Bharti Airtel's continued focus on expanding 4G presence in rural India.

According to Jefferies, if Vi goes for "a limited network expansion" instead of an aggressive roll out, most of the incremental tower/tenancy additions for Indus will be driven by Airtel.

Over the past five months, Airtel has been deploying more than 30,000 sites to expand coverage into 60,000 high-potential villages to boost its share of 4G net additions.

Analysts, though, expect the pace of Airtel's site additions to also moderate once the rural expansion is completed. Such a scenario, they said, could limit Indus's tower/tenancy CAGR to 6%/3.5% over FY24-27 and FCF generation to '18 per share in FY26.