Aniket PujariShares of Indus Towers Ltd, Bharti Airtel Ltd’s telecom infrastructure subsidiary, have put up a good showing lately, gaining close to 30% from their 52-week low of ₹312.55 on 3 September. Indus has been recovering long-pending dues from Vodafone Idea Ltd. Cheering these developments, credit rating agency ICRA upgraded its long-term rating to AAA on 27 November, soon after Emkay Global Financial Services raised its target price for the stock from ₹410 to ₹460.
With the stock back to flirting with its critical resistance level of ₹400, focus has turned towards the fundamental factors driving momentum. Vodafone Idea’s potentially improving prospects bode well for Indus. But capex-driven strain on cash flows along with a falling tenancy ratio and persistently negative energy margins pose hurdles, while Indus’s entry into Africa has pros and cons.
Vodafone Idea’s fate is crucial
In October the Supreme Court ruled that the government could consider providing relief to Vodafone Idea on its pending adjusted gross revenue (AGR) dues. Vodafone owes money to Indus, so an increased likelihood that it can sustain operations is welcome. Aided by nearly ₹200 crore of dues recovered, Indus reported a sequential 180 basis points (bps) Ebitda margin expansion to 55.8% in the September quarter (Q2FY26). But this was less than the ₹3,024 crore recovered in Q3FY25, which had caused Indus’s reported Ebitda margin to spike to 92.2%.
Despite a potential AGR waiver, Vodafone Idea’s cash troubles won’t be behind it unless a fundraise follows. This means Indus will likely have to keep making bad-debt provisions for the foreseeable future, notwithstanding intermittent recoveries. Motilal Oswal Financial Services continues to model about ₹2,000 crore of bad debt provisions (about 25% of Vodafone Idea’s annual service rentals) from FY27 to FY32.
Moreover, with the number of telecom service providers down to just four (including BSNL and MTNL), and with Vodafone Idea’s slow rollout, Indus’s tenancy ratio has fallen over the quarters to 1.62 in Q2FY26. How this evolves with Vodafone Idea’s potentially improving financial health and expansion remains to be seen.
Capex reliance
Until then, Indus’s growth will have to be powered by large capex for tower expansion (it had 256,074 towers as of September 2025), even as its ageing tower infrastructure requires growing maintenance capex, the ongoing 5G rollout calls for upgrades and a transition to solarization and battery power systems calls for more investments. Capex ballooned from ₹1,950 crore in Q1FY26 to ₹2,560 crore in Q2FY26.
While financial leverage at 0.58 and a healthy interest coverage ratio of 11.5 offer comfort, capex-related outflows and growing receivables shrunk the company’s free-cash flow from ₹1,570 crore in Q1FY26 to ₹300 crore in Q2FY26. Profitability has been affected by persistently negative energy margins owing to continued weather-related disruptions and expansion into regions with limited grid availability.
Meanwhile, Bharti Airtel’s growing stake in Indus means the tower company can capitalize on the telecom service provider’s presence in South Africa. Management plans to start slow, with Airtel Africa as the key anchor tenant, and scale up over time. Clarity on the amount of investment and the return on them is likely to emerge in the next few months. But currency depreciation as well as geopolitical and economic risks in the region could play spoilsport.
That said, Indus stock trades at an enterprise value of 6.5 times estimated FY27 Ebitda, based on Bloomberg consensus estimates. Valuations could expand on the successful execution of capex plans and the Africa entry, as well as any positive developments on Vodafone Idea. Management’s commitment to dividend distribution by Q4FY26 could also lift sentiment for the stock.
