Can multibagger stock Indus Towers gain from Vodafone Idea, Bharti Airtel network investments?

Indus Towers, which reported a beat on Q4 Ebitda, could leverage the benefits of Bharti Airtel's aggressive network densification and the rollout of 5G services, said analysts, who believe Vodafone Idea's recent fund raise and investments in the network will benefit Indus Towers from towers and tenancy additions. This, they said, will also provide comfort in collections of past Vodafone Idea dues.

That said, the prevailing Indus Towers valuations, following a 125 per cent jump in its shares in the last one year, seem to be factoring in most positives, analysts said.

Driven by elevated capex and collection shortfall in 1HFY24, free cash flow generation for Indus Towers remained modest and led to the company skipping dividend payout for FY2024, said Kotak Institutional Equities. Vodafone Idea's fund-raise is a material positive for Indus Towers, but is likely adequately priced in, the brokerage said while suggested a 'Reduce' with revised fair value of Rs 350 on the stock.

Motilal Oswal has upped its revenue and Ebitda estimates for FY26 by 6-10 per cent and factored in 8 per cent revenue growth and 11 per cent profit growth over FY24-26E. "We arrive at our target price of Rs 340, which implies an EV/tenancy ratio of Rs 2m and an EV/Ebitda ratio of 5 times. The stock has been up 75 per cent YTD, and we believe most of the benefits are priced in at this valuation. Reiterate Neutral, it said.

Emkay Global said order book for tower addition looks strong for the remaining year. Tenancy and tower additions for Indus Towers are likely to stay elevated for the next few quarters, led by rural expansion and capex by Vodafone Idea for 4G/5G after the Rs 20,000 crore fund-raise.

"Also, 5G will require tower densification as the rollout nears completion, which though will take some more time. Reversal of provisioning related to Vi after the fund-raise would improve reported Ebitda margin for the company. As a result, we raise our FY25/FY26 Ebitda estimates by 10 per cent/12 per cent, as we adjust for the provisioning reversal," it said.

This brokerage has upped its target price for the stock to Rs 375 from Rs 250 but maintained its 'ADD' rating on the counter.

"We maintain SELL given the recent sharp run-up in stock price, and CMP factoring in sustained over 10 per cent EPS growth which appears stretched," said ICICI Securities, which has a price target of Rs 270 on Indus Towers.

With Vodafone Idea raising equity capital and embarking on its capex cycle, it should add to Indus’ growth. Indus Towers' high capex could sustain keeping FCF generation below normal, ICICI Securities said.