Indus Towers shares drop 4%, fall most in a month; here is why

Shares of Indus Towers, the country's largest telecom infrastructure provider, fell as much as 4.09%, its biggest single day fall since March 13, to hit an intraday low of ₹420.50 on the National Stock Exchange (NSE) on Wednesday, April 15. On the BSE, Indus Towers shares dropped as much as 4.28% to hit an intraday low of ₹419.75 in an overall strong session.

Indus Towers shares came under selling pressure after global investment firm Jefferies said that company's revenue could get adversely impacted going ahead as most of its tower sites are set for renewal in 2026 and 2027 and elevated capital expenditure will impact its free cash flows (FCF).

A large portion of Indus Tower's sites that were set up in second half of 2016 and first half of 2017 are coming up for renewal in 2026 and 2027, Jefferies noted.

“A moderation in incremental site additions at an industry level is likely to increase competition for any large renewals which in turn may require Indus to either offer a higher discount during renewals or run the risk of the tenant shifting to other tower companies,” Jefferies said in a report.

“If Indus Towers offers an additional discount to any one of the operators, it may have to offer the same discounts to Bharti Airtel and Vodafone Idea which would result in revenue loss on its entire tenancy base. On the other hand, a lower discount offering will likely lead to some tenancies not being renewed, however overall revenue loss may be lower. In our view, even if Indus does not offer any additional discount, the renewal risk in the near term is low as not all sites may have an alternative nearby. We expect Indus to offer no additional discount and expect 25% of sites to not be renewed and hence cut our FY27/28E,” Jefferies said.

Jefferies has cut its profit estimate by 6% as higher capex will lead to higher growth in depreciation and amortization costs. Higher capex will lead to 22-26% cuts to Jefferies FCF numbers for FY27-28 which will drive a 15-30% cut to dividend expectations.

Indus Towers shares ended 4.15% lower at ₹420, underperforming the NIFTY50 index which closed 1.6% higher.