Indus Towers shares do not have a favourable risk-reward, Motilal Oswal says despite likely VIL relief

Shares of Indus Towers Ltd. are in focus on Friday, December 19, after the company said its wholly-owned subsidiary Indus Towers FZE has incorporated two wholly-owned subsidiaries — Indus Towers Investment FZE and Indus Towers Ventures FZE — in the United Arab Emirates (UAE).

In an exchange filing, Indus Towers said the share capital is 300 shares of AED 1,000 each, for both entities, respectively.

It said the entities will consider investment in African markets, starting with Nigeria, Uganda and Zambia. The contribution to the initial share capital will be made in cash at face value, it said.

Risk-Reward Unfavourable, Says MOSL

On another note, brokerage firm Motilal Oswal Financial Services, in its note said Indus Towers' Africa foray is still at an initial stage, and concrete investment plans have not been finalised. However, the management believes Africa is a good growth market, with the presence of a strong anchor tenant in Airtel Africa (AAF).

Also, the company's scale, with Bharti Airtel's knowledge of African markets, would help it deliver lower capital and operating costs, which should aid incremental tenancy additions, it added.

Motilal Oswal's note comes after its recent interaction with the senior management of Indus Towers to understand the firm's growth outlook and execution strategy. It has a "neutral" rating on the stock, with a price target of ₹390 per share, implying a potential downside of 5%.

Motilal Oswal said Indus Towers has been gaining market share in new tower builds and benefiting from the shift from other tower companies in recent quarters, driven by its operational efficiencies and network uptime.

Its management remains confident of securing most of Reliance Jio's upcoming tenancy renewals, given the renewal track record in the past and attractive rentals, it said. Most of these are second or third tenancies, with sharing benefits built-in.

The analyst said Indus Towers' policy on shareholder returns remains unchanged, and the management remains intent on reinstating dividends soon. However, it is awaiting clarity on potential relief measures for Vodafone Idea to avoid any unforeseen cashflow constraints.

Motilal Oswal said its FY27-28 EBITDA estimates for Indus Towers are optically higher as it no longer assumes ₹2,000 crore bad debt provisions from Vodafone Idea over FY27-32. However, on an adjusted basis, its estimates are lower by 1-2% because of a moderation in its tenancy growth assumptions.

Its target price remains unchanged at ₹390 per share as the boost for the removal of bad debt provisions is largely offset by continued elevated capex.

While any potential relief for Vodafone Idea is sentimentally positive for Indus Towers, Motilal Oswal is of the view that the risk reward is uncompelling at the current market price.

Of the 23 analysts who have coverage on Indus Towers, 13 have a "buy" rating, four have a "hold" rating and six have a "sell" rating.

Shares of Indus Towers are currently trading little changed at ₹409.45. The stock is up 19% so far in 2025.

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