Broker’s Call: Sell Indus Towers

| Updated on March 17, 2021

Reliance Securities

Target: ₹201

CMP: ₹254.25

The tenancy ratio of erstwhile Bharti Infratel — now known as Indus Tower after a scheme of amalgamation — peaked in FY17 to 2.34x and sharply fell to 1.87x in FY19, owing to mass exit of co-location after merger of Vodafone and Idea Cellular. Non-linear co-location addition has continued since FY19, which led to the tenancy ratio touching a 10-year low of 1.82x in Q3FY21.

As the 5G launch in India is a couple of years away, telecom companies are working on the Open-RAN (Radio Access Network) model to minimise capex and focus on revenue-linked capacity creation. As these deployments are unlikely to support sharing models, the role of tower companies will diminish to being utility infrastructure providers. Thus, the linear tenancy is unlikely to witness any meaningful upside for Indus in the next three years.

The erstwhile Bharti Infratel was charging ₹39,581 monthly rental per tenancy in FY19, which rose to a record ₹44,845 in Q3FY21 on the back of exit charges. The implied rental of Tower Infrastructure Trust is lower than that of Indus, which rules out any incremental rise in rental rate, going forward.

As the exit penalty is expected to end by H2-FY23E, we expect the downward pressure on the rental front to continue.

Published on March 17, 2021

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