Vodafone Idea AGR relief puts Indus Towers back in dividend frame

Indus Towers telecom

• AGR relief boosts Indus Towers' cash-flow outlook and dividend payout prospects
• Vodafone Idea's payment visibility boosts Indus Towers' vendor payments.
• Indus Towers may resume dividends as Vodafone Idea's liabilities are clarified.

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The upcoming third-quarter results will likely bring some cheer to Indus Towers investors, as the government’s recent decision on Vodafone Idea’s AGR liabilities is expected to improve cash-flow visibility and may prompt management to offer clearer guidance on dividend payouts, analysts have said.

The adjusted gross revenue (AGR) relief has emerged as a meaningful positive for Indus Towers, sharply improving visibility on Vodafone Idea Ltd’s (VIL’s) ability to resume regular vendor payments and step up network capex. Vodafone Idea is a major customer of Indus Towers.

“AGR relief for VIL is a strong positive for Indus, as it increases visibility on VIL’s ability to make regular vendor payments and incur network capex,” Axis Capital said in a January 12 note.

Indus Towers last paid dividend in May 2022, an interim payout of Rs 11, and has not distributed any dividends since then, delaying payouts for 12 consecutive quarters across FY23, FY24, FY25 and the ongoing FY26 period due to prolonged uncertainty around Vodafone Idea’s dues and payment visibility.

“With VIL’s higher capex, we also expect tenancy to start moving back up from FY27E onwards; we estimate tenancy of around 1.75x by FY31E. Improved payment visibility from VIL and some tenancy uptick increase the likelihood of dividend reinstatement.”

Improved payment visibility directly strengthens Indus Towers’ cash-flow outlook and raises the probability of dividend payouts.

Historically, the company has returned excess free cash flow (FCF) to shareholders, with payout ratios exceeding 100 percent in earlier years.

“While payouts may not start at elevated levels —given factors such as the company’s Africa foray —we expect them to rise over time,” Axis Capital said. “We have built in a dividend payout of 45–70 percent of FCF over FY26–28E, implying a dividend yield of around 3–7 percent.”

AGR shadow on dividend

Indus Towers’ management has previously indicated that clarity on Vodafone Idea’s AGR liabilities would be key to more informed decisions on shareholder returns.

In October, Indus Towers said the Supreme Court’s AGR ruling on Vodafone Idea would help it assess potential cash returns or dividend payouts.

Speaking at the company’s Q2 earnings call on October 28, managing director and CEO Prachur Sah said the board remained committed to considering a cash distribution to shareholders by the end of the current fiscal. Sah said AGR-related uncertainty —alongside growth-linked capital expenditure — had weighed on dividend decisions.

ICICI Securities expects Indus Towers’ tenancies to rise by 5,500 in Q3, with rental per tenant seen increasing 0.5 percent quarter-on-quarter to Rs 41,923, driven by higher loading revenue from 5G expansion by Bharti Airtel and Vodafone Idea.

Rental revenue is projected to rise 0.4 percent QoQ and 9.3 percent YoY to Rs 5,300 crore, while reimbursement revenue is expected to grow 2.2 percent QoQ to Rs 3,000 crore.

EBITDA, however, is seen declining 0.6 percent QoQ and 34.7 percent YoY to Rs 4,540 crore due to a high base. Net profit is expected to dip 0.4 percent QoQ and 54.3 percent YoY to Rs 1,830 crore.

AGR relief

Following last week’s Cabinet decision, Vodafone Idea received a communication from the Department of Telecommunications saying its AGR liabilities would be frozen at Rs 87,695 crore as of December 31, 2025. Annual payments have been capped at about Rs 100 crore until March 31, 2035 and the remaining Rs 80,000 crore, subject to reassessment by a DoT committee, would be paid in instalments from FY36 to FY41.

“With no compounding going forward, the net present value of the AGR burden effectively comes down by 60–80 percent, depending on the discount rate,” IIFL Capital said in a January 12 note.

The brokerage added that with negligible AGR payments until FY35, Vodafone Idea’s fund-raising prospects improve meaningfully, creating room for equity infusion and potential conversion of part of its Rs 1,20,000-crore spectrum debt into government equity.

IIFL Capital estimates potential payouts of Rs 4,400 crore, Rs 15,600 crore and Rs 25,700 crore in FY27, FY28 and FY29, respectively, noting that a fresh equity infusion and spectrum-debt conversion could materially reduce Vodafone Idea’s future payment burden.