Sell Indus Tower; target of Rs 270: ICICI Securities

sell

ICICI Securitie's research report on Indus Tower

Reported rental revenue slowed 7% YoY/1.3% QoQ to INR 46.4bn in Q1FY25. Rental/tenancy slipped 1% YoY/0.8% QoQ to INR 41.1k, and dip INR 340 QoQ due to lower rates and taxes pass-through, which are higher during Q4FY24 (seasonality). Rental is benefiting from rising single tenancy towers, and large 5G loading, but it has few drags which is making rental growth appears slow including, discounts on renewal (INR 500/month), and equalisation accounting. Further, Indus noted, new towers also have lower rental, as they need lower investments. Lean towers have grown to 11.2k, up 492 in Q1FY25, while rental/towers stand at INR 16.3k, up 10% QoQ.

Outlook

Indus Towers’ (Indus) Q1FY25 performance was good on two counts – 1) Strong net tenancy addition, at 6,340, despite 310 exits. 2) strong cash collection, including INR 7.6bn collected towards past overdue. However, energy losses burgeoned due to seasonality and reconciliation disputes; and rental/tenant dipped 0.8% QoQ, largely due to lower rates and taxes pass-through revenue. VIL should embark on a capex cycle, which would likely provide tenancy growth opportunity for Indus forthwith; and Indus is unperturbed by the rise in competitive intensity or price pressure. The dominant incremental tenancy share for Indus is baked into our estimates, which remains unchanged with a DCFbased TP at INR 270. Retain SELL as CMP factors in sustained >10% EPS growth, which appears stretched.

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