Indus Towers Ltd. received a ratings upgrade from Macquarie, but not because of an improving earnings outlook. The brokerage upgraded the stock to 'Neutral' from 'Underperform' while maintaining its target price of Rs 350, saying the recent correction in the share price has made valuations more reasonable.
Indus Towers has declined nearly 14% over the past six months, falling from a high of Rs 477.75 to close at Rs 381.60 on Tuesday. The weakness has persisted in the near term as well, with the stock losing about 4.8% over the past five trading sessions to Rs 380.70.
Macquarie said it expects revenue growth of less than 5% over the medium term, reflecting muted expansion in India's telecom tower market. The brokerage also noted that its EBIT estimates for FY28-FY29 remain 8-12% below consensus.
According to the brokerage, the upgrade is valuation-driven rather than fundamentals-driven.
While the recent decline in the stock has improved the risk-reward equation, Macquarie believes investors will need to see a stronger EBITDA growth trajectory before becoming more constructive on the company's long-term prospects.
Potential Growth Levers
One of the potential growth levers identified by the brokerage is Indus Towers' expansion into Africa. Macquarie said the international business could support revenue growth over time, but cautioned that the initial phase is likely to be return-on-invested-capital (ROIC) dilutive because of low tenancy levels in the early years. As a result, the expansion may boost the topline without immediately translating into stronger profitability.
The brokerage also made no material changes to its earnings estimates, with FY28-FY29 earnings per share forecasts changing by less than 1%. Its valuation remains based on a scenario-weighted approach, suggesting that while downside risks have reduced following the stock's pullback, significant upside will depend on stronger operational execution.
Looking ahead, Macquarie said investors should closely monitor Vodafone Idea's tenancy outlook, the pace of tenancy migration from Jio, the company's Africa expansion, and the potential for higher dividend payouts.
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