Emkay Research has reaffirmed their BUY recommendation on Indus Towers, upgrading the target price to Rs460 from Rs410, a 12% increase, reflecting strong quarterly results and improved client stability. Despite a QoQ reduction in tenancy additions, revenue and margins exceeded expectations, driven by growth in tenancy and higher realizations. The company’s strategic entry into Africa, capex investments fueling future revenue growth, and a favorable Supreme Court ruling on Vodafone Idea’s AGR dues all bode well for long-term prospects. With valuations now at a discount to global peers, Emkay sees upside potential of approximately 19%, making Indus Towers an attractive investment in the telecom infrastructure space.

Strong Quarterly Performance and Key Metrics

Indus Towers reported robust Q2FY26 results with revenue clocking Rs81.9 billion, beating street estimates by a slight margin and marking a 1.6% increase QoQ. Revenue growth was notably supported by a healthy 4,301 tower additions, which brought the total tower count to 256,074, along with a 1.4% sequential increase in revenue per tenancy. The reported EBITDA margin at 55.8% reflected a significant 180bps QoQ rise, albeit assisted by provisions reversal. Adjusted EBITDA margin also improved by 60bps to 53.5%. Net profit rose 5.9% QoQ to Rs18.4 billion, underpinning operational resilience. Elevated capex at Rs25.6 billion, up from Rs19.5 billion in the previous quarter, was primarily allocated toward maintenance of aging infrastructure, 5G-related upgrades, and the battery power transition.

Capex and Free Cash Flow Dynamics

While higher capital expenditure contributed to a decline in free cash flow (FCF) to Rs3 billion from Rs15.7 billion QoQ, Emkay expects these investments to catalyze future tenancy growth and improve energy margins. The focus on tower upgrades and rollouts, including transition to sustainable energy solutions, is poised to enhance long-term asset quality and cost efficiency. This disciplined capex strategy ideally positions Indus Towers to capitalize on evolving telecom needs, especially with 5G adoption ramping up.

Africa Foray: Cautious But Promising

Management communicated cautious optimism regarding its Africa venture, targeting gradual rollout over the next 3-6 months. Leveraging Bharti Airtel’s regional footprint, the company plans to build a modest initial tower base while learning operational dynamics on the ground. The approach aims to minimize capital misallocation and create value over time. However, key risks remain, including currency depreciations and difficulties in dividend repatriation. Emkay will continue monitoring management’s execution and strategic recalibrations in this aspect.

Positive Regulatory Developments and Impact on Vodafone Idea

One of Indus Towers’ major clients, Vodafone Idea (VI), received a critical lifeline following a Supreme Court decision allowing the Government to reconsider AGR dues reassessment. This ruling enhances business sustainability prospects for VI and reduces concerns around long-term revenue streams from this client, thereby supporting Indus Towers’ stable tenancy base. Consequently, Emkay raised the target multiple from 6.5x to 7x EV/EBITDA and rolled over valuations to Q2FY28E EBITDA for recalibrated valuation metrics.

Valuation and Financial Snapshot

At a current market price of Rs386, Indus Towers trades at an FY27E EV/EBITDA multiple of 6.1x, which is discounted relative to global infrastructure peers. Emkay’s revised target price of Rs460 implies nearly 19.2% upside from present levels. The company’s strong balance sheet features a net debt of Rs149.7 billion (FY26E), with an interest coverage ratio standing comfortably at 8.7x. Financials project continued revenue growth at a CAGR of approximately 7-9% through FY28, with stable EBITDA margins near 55%, and adjusted PAT growth steady at over 10% annually. Return ratios remain healthy with RoE at 20.7% for FY26 estimated and RoIC around 24.5%.

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Stock Levels and Investment Targets

- Current Market Price (CMP): Rs386 - 12-Month Target Price (TP): Rs460 - Upside Potential: ~19.2% - Support Levels: Rs360, Rs340 - Resistance Levels: Rs420, Rs460 (target) - Recommendation: BUY with conviction based on robust operational metrics, supportive macro-regulatory environment, and strategic growth initiatives.

Conclusion

Emkay Research’s endorsement of Indus Towers as a BUY reflects a compelling investment narrative grounded in strong quarterly execution, prudent capital deployment, and positive regulatory tailwinds. The company’s cautious expansion into Africa, combined with a healthy balance sheet and attractive valuation, presents a potent combination for capital appreciation. Investors looking to gain exposure to the telecom infrastructure sector with a stable yet growth-oriented profile would find Indus Towers a fitting choice at current levels, with a clear upside trajectory toward Rs460 over the next 12 months. Vigilance around capex execution and Africa performance, however, remains prudent, given the growth and currency risks involved.