Institutional Equity Research

CMP* (Rs) 256

Indus Tower Upside/ (Downside) (%) -21 SELL

Bloomberg Ticker INDUSTOW IN
Telecom | India
Market Cap. (Rs bn) 689 2-Year Target Price: Rs.201
Free Float (%) 30
Initiating Coverage | 16 March 2021 Shares O/S (mn) 2,695

Client’s Financial Distress - Key Concern

Key Setbacks
 Tenancy ratio at decadal low; linear addition of co-location is challenging
 Survival of Vodafone Idea (VI) is under threat – a big concern for INDUS
 Competitively higher rental – no scope for further rise Click Image for Video
 Likely end of exit penalty in 2HFY23 to drag rentals Presentation 
 Launch of 4G/5G-enabled smart phones by Jio & Google to dilute 2G/data subscribers
base of VI/Airtel
1. Tenancy ratio (which is expressed as a fraction of total number of operators sharing
towers/total number of sites present) of erstwhile Bharti Infratel – now known as
Indus Tower (INDUS) after a scheme of amalgamation – peaked in FY17 to the level of Research Analyst
2.34x and sharply fell to 1.87x in FY19 owing to mass exit of co-location after merger Yogesh Patil
of Vodafone and Idea Cellular. Non-linear co-location addition continued since FY19, Contact : (022) 41681371 / 9763153797
which led to tenancy ratio to touch 10-year low of 1.82x in 3QFY21. Email : [email protected]
2. As the 5G launch in India is couple of years away, the telecom companies (telcos) are
working on Open-RAN (Radio Access Network) model to minimize capex and focus Research Associate
on revenue-linked capacity creation. As these deployments are unlikely to support Pratik Oza
sharing models, the role of tower companies (towercos) will diminish to being utility Contact : (022) 41681371 / 9960358990
infrastructure providers. Thus, the linear tenancy is unlikely to witness any meaningful Email : [email protected]
upside for INDUS in the next 3 years.
3. Erstwhile Bharti Infratel was charging Rs39,581 monthly rental per tenancy in FY19
(before mass exit of tenancies), which rose to a record Rs44,845 in 3QFY21 on the back
of exit charges. The implied rental of Tower Infrastructure Trust (TIT) is lower than that
of INDUS, which rules out any incremental rise in rental rate, going forward.
4. After mass exit of tenancies post merger of Vodafone and Idea Cellular, Bharti Infratel
and Indus (as separate units) started receiving exit penalties. However, as the exit
penalty is expected to end by 2HFY23E, we expect downward pressure on rental front Share price (%) 1 mth 3 mth 12 mth
to continue.
Absolute performance 19.6 28.2 33.8
ESG Analysis: Analyzing INDUS on 20 key criteria under ESG Matrix, we have assigned an
Relative to Nifty 10.2 14.4 1.4
overall score of 51% to the company. Under “Environmental Head”, we have assigned 49%
score, as it emits radiation and consumes conventional fuel, which pose a great danger to the
environment. Under “Social Head”, we have assigned 53% score. Under “Governance Head”, Shareholding Pattern (%) Dec-20 Jun-20
we have assigned 50% score. (please refer to page no.6 for detailed ESG analysis). Promoter 69.9 53.5

Outlook & Valuation Public 30.1 46.5

Looking ahead, we expect the company’s revenue growth rate to slow down to 3% CAGR over
FY20-24E. We expect co-locations to be added at run rate of 8,000/year, which will dilute its 1 Year Stock Price Performance
tenancy ratio to 1.8x. While we expect EBITDA and EPS to clock 3%/5% CAGR each over FY20-24E, 300

we expect its EBITDA margin at 50% in FY24E. In light of decadal low tower tenancy ratio, no
250
scope for further rise in rentals, likely client concentration risk, delay in tariff hike and launch
of 4G/5G-enabled smart phones by Jio + Google, we initiate coverage on INDUS with SELL 200

and a DCF-based 2-Year Target Price of Rs201 at implied valuation of 3.5x EV/EBITDA of 150
FY24E.
100

Financial Summary
FY20 FY21E FY22E FY23E FY24E 50
Y/E Mar (Rs mn)
Sep-20

Feb-21

Feb-21
Jul-20

Jul-20

Aug-20

Jan-21
Oct-20

Oct-20
Mar-20

Mar-20

Apr-20

May-20

May-20

Jun-20

Dec-20

Dec-20
Nov-20

Revenue 2,55,624 2,57,113 2,62,283 2,73,580 2,87,357

EBITDA 1,27,239 1,29,274 1,34,809 1,36,727 1,44,194
Note: * CMP as on 15 March 2021
PAT 50,270 49,229 53,804 54,322 60,196
EBITDA Margin (%) 50 50 51 50 50
EPS (Rs) 18.7 18.3 20.0 20.2 22.3
PE (x) 13.7 14.0 12.8 12.7 11.4
Source: Company, RSec Research
We have made changes to our Recommendation and Target Price. Please refer to Page no. 28 at the end of the report.
Our Thesis

f Emergence of Tower Companies: The pace and scale of tower deployment were possible due to the efficiency
gain by the towercos, which also led to significant cost saving owing to sharing model. The turning point for India’s
telecom infrastructure was the granting of IP-I and IP-II licenses in 2008, which was followed by the telcos hiving off
their tower assets into separate companies and sharing assets based on tenancy model.

f Network Densification & Improvement in Quality of Service: The demand for wireless broadband services is
expected to increase, going forward led by availability of affordable handsets and services. Rapid increase of
Key Sectoral Theme applications owing to network densification creates new business opportunities for passive infrastructure providers
in the form of macro/micro towers along with adjacent opportunities.

f Adjacent Growth Opportunities: Expansion of 4G/5G network and infrastructure expansion across cities will
lead to a likely surge in demand for small cells, fiberized backhaul, Wi-Fi hotspots, edge data centres, shareable
passive infrastructure and In-building solutions (IBS), which represent new revenue opportunities for the towercos.
Development of ‘Smart Cities’ is a key initiative under the ‘Digital India’ programme, which will open up new
business opportunities enabling the towercos to enjoy the benefits of shared infrastructure model.

f Tenancy Ratio at Decadal Low: Tenancy ratio is at 10-year low, while the linear addition of tenancies continues to
remain challenging. As 5G rollout in India appears to be a couple of years away, we do not expect any meaningful
tower addition in the next three years.
Key Investment Theme f Rental Revenue Likely to Witness Sharp Decline: Amongst three major telcos, Vodafone Idea (VI) is facing huge
financial issues to the extent that its survival seems to be quite tough. Steep tariff hike is an only viable option for
VI, which is untenable in current situation. This not only affects the operations of VI, but also affects rental revenue
of INDUS.

f Earlier-than-expected auction of 5G spectrum and roll-out

f Entry of new telecom players into India
Key Risks
f Turnaround of VI by successfully tiding over the turbulent times

2
 EPS & Target Price Calculation of Fair Value
WACC (%) 11
25.0 201 250
181 Terminal EBITDA multiple 1
168 180
20.0 164 22.3 200 Terminal EBITDA 1,42,859
151
136 20.0 20.2 Terminal value 1,45,716
15.0 18.7 18.3 150
16.8 PV of terminal value 68,097
15.1
10.0 100 PV FCFF 4,79,878
5.0 50 Enterprise value 5,47,975
Less Net debt 7,081
- - Equity value 5,40,894
FY18 (-3) FY19 (-2) FY20 (-1) FY21E FY22E FY23E FY24E Outstanding shares (%) 2,695
(Base (Year 1) (Year 2) (Year 3) Fair value (Rs/sh) 201
Year)
Source: Company, RSec Research
EPS (Rs) Target Price (Rs) (RHS)

Source: Company, RSec Research

Price Sensitivity Analysis

EPS (Rs) Growth (%) P/E 8.0x 9.0 x 10.1 x 12.0 x 14.0 x
FY18 (-3) 16.8 15.2 134 151 169 201 235
FY19 (-2) 15.1 -9.81 16.9 121 136 152 181 212
FY20 (-1) 18.7 23.45 13.7 149 168 188 224 261
FY21E (Base Year) 18.3 -2.07 14.0 146 164 184 219 256
FY22E (Year 1) 20.0 9.29 12.8 160 180 201 240 280
FY23E (Year 2) 20.2 0.96 12.7 161 181 203 242 282
FY24E (Year 3) 22.3 10.81 11.4 179 201 225 268 313
Source: Company, RSec Research

Scenario Analysis:
Base Case Scenario: In Base Case scenario, we expect INDUS’ tower addition to clock 3%
CAGR driven by 2% CAGR in co-location over FY20 to FY24E. Hence, we expect the company
revenue/EPS to clock 3%/5% CAGR over the same period. At WACC of 11% and terminal
EBITDA multiple of 2x, we arrived at 2-year DCF - based target price of Rs201, which is ~21%
lower than the CMP.

Bull Case Scenario: In Bull Case scenario, we expect INDUS’ tower addition to clock 5%
CAGR driven by 4% CAGR in co-location over FY20 to FY24E. Hence, we expect the company
revenue/EPS to clock 5%/7% CAGR over FY20-FY24E. At WACC of 11% and terminal EBITDA
multiple of 3x, we arrived at 2-year DCF - based target price of Rs259, which is ~1% higher
than the CMP.

Bear Case Scenario: In Bear Case scenario, we expect INDUS’ tower addition to clock 1%
CAGR driven by 1% CAGR in co-location over FY20 to FY24E. Hence, we expect the company
revenue/EPS to clock 1%/3% CAGR over the same period. At WACC of 11% and terminal
EBITDA multiple of 1x, we arrived at 2-year DCF - based target price of Rs175, which is ~32%
lower than the CMP.

Price Target Scenario

Particulars Base Case Bull Case Bear Case
Tower Addition CAGR -FY20- FY24E (%) 3 5 1
Co-location Addition CAGR FY20-24E (%) 2 4 1
Revenue CAGE over FY20-FY24E (%) 3 5 1
EPS CAGR over FY20 -FY24E (%) 5 7 3
WACC % 11 11 11
Terminal EBITDA Mutiple 1 3 0
2 Year Target Price 201 259 175
Source: RSec Research Estimates

3
Investment Decision Matrix (IDM)
Key Criteria Score Risk Comments

Management Quality 6 Low INDUS has prudent management with a high corporate governance track record

Promoter's Holding Pledge 2 High A primary pledge of 190mn shares is owned by Vodafone Group in the company for which creation process (for primary pledging) is underway.
INDUS has an quality board members, who are all leaders in their areas of specialization/business; its board includes ex-IRS officer, MD & CEO
(India & South Asia) of Bharti Airtel, eminent investment banker and finance professional, vice-chairman of Bharti Enterprises, CTO of Bharti Airtel,
Board of Directors Profile 6 Low
managing partner of a leading corporate/commercial law firm, a member of the finance leadership team with Vodafone Group (the UK); out of 11
board members, 4 members are independent and 7 non-independent directors
The telecom towers market is expected to register 4.56% CAGR over FY20-25E; tower-sharing is one of the significant growth drivers for telecom
Industry Growth 5 Medium
industry, as it provides benefits like cost reduction and faster data rollout
(1) consolidation in the telecom industry and changing telecom regulations; (2) dependence on a relatively small number of customers increases client
Regulatory Environment / Risk 2 High
concentration risk; and (3) impact of regulatory change can significantly impact revenue streams
Huge capex requirement restricts the entry of new players; telecom industry has further consolidated into three major players and incumbent tower
Entry Barriers / Competition 6 Low
companies have a long-lasting business relationship is not so easy for the new entrant
Fibre: Tower fiberization is expected to witness steady growth in future; especially with expectation of 5G rollout in 2023/24 in India, fiberization rate
is expected to surge from 2023 onwards; the tower companies are well-positioned to cash in on the fibre opportunity with their existing experience
in managing distributed infrastructure assets
Small Cells: The tower companies can explore the provision of fiberized small cells as it would position them as an integrated player; they can either
deploy their fibre backhaul or partner/acquire independent fibre companies to provide small cell fiberization; it is a viable proposition, as the provision
of site and backhaul together enables cost-sharing among multiple operators and these cost savings can be further passed on to the telecom
New Business/Client Potential 6 Low
operators; globally, the tower companies are already adding small cells to their inventory of site typologies; a bigger opportunity lies where the tower
companies can acquire/own their small cells and offer fiberized small cell sites to the telecom operators
Public Wi-fi: Owning/maintaining distributed assets gives tower companies a synergistic playing field in Wi-Fi segment; despite significant growth in
mobile data traffic, Wi-Fi penetration in India has remained limited; tower companies have an opportunity to foray into this business
Smart Cities Mission: This initiative has opened up a new avenue of growth for the infrastructure providers; digital infrastructure forms the backbone
of the smart city initiative and the tower companies are well-positioned to create/maintain this infrastructure;

Business Diversification 1 High INDUS is into leasing out of telecom towers and has not yet ventured into any other businesses

INDUS enjoys a combined market share of 32%; with the advancement from 4G to 5G, tower infrastructure needs to be further strengthened, which
Market Share Potential 5 Medium
would enhance its market share potential
As telecom companies are ramping-up on 5G technology, more towers are required to be added, which will lead to incremental revenue and margin
Margin Expansion Potential 4 High
most likely post 2023 only.
EPS is expected to clock only 5% CAGR over FY20-FY24E; earnings growth expected to be impacted by the lower number of tower addition, delay in
Earning Growth 4 High
5G rollout.

Continued...

4
Balance Sheet Strength 4 High D/E ratio stood at 0.7x, while fixed asset turnover remains a concern despite negative working capital cycle due to stagnated revenue growth

The short-term loans are taken from the banks/financial institutions and carry an interest rate of 7.4% to 8.8%; other exposure includes bank overdraft
Debt Profile 6 Low
for working capital purpose

FCF Generation/NWC 6 Low The company is expected to generate FCF to the tune of ~Rs121bn till FY24E

Dividend Policy 5 Medium Its dividend payout ratio is pegged at 89% over FY21E-FY24E

Total Score Out of 150 68

Average Score (%) 45% High

5
Environmental, Social & Governance Matrix (ESGM)
Key Criteria Score Risk Comments

Environmental
INDUS is focused on reducing carbon emission and has spent Rs72mn on energy conservation equipment; efforts are being made to reduce the consumption of
Climate Change and Carbon Emission 4 High
diesel fuel, which is evident from ~84% reduction of diesel consumption/kw since 2010 and by 37% over the last two years

Reduction in diesel usage and no notice from the CPCB (apex body for pollution control in India) suggest that INDUS has been able to mitigate pollution concerns
Air & Water Pollution 4 High
effectively

Biodiversity 5 Medium We maintain a neutral stance in the absence of any credible information in this regard

Deforestation 4 High As per our understanding, INDUS might have to axe trees to set up ground base towers

INDUS has >2,500 wind and solar-energy based towers in the portfolio; indigenously-built solar tree with a net metering solution has been designed/deployed
Energy Efficiency 7 Low
at Udaipur circle of Rajasthan, while a 5kW axial wind turbine has been installed on top of the towers on trial basis at Rawatbhatta (Rajasthan)

Whilst the annual report suggests that a considerable quantum of wastage is being reused, we maintain a neutral stance in the absence of any quantifiable
Waste Management 5 Medium
data points in this regard

We maintain a neutral stance in the absence of any credible information in this regard; as per our understanding, the government issues separate spectrum for
Defence / Arms / Ammunition Exposure 5 Medium
defence communication

Environment Score (%) 49% High

Social
Customer Satisfaction 6 Low INDUS has received several awards, which bear the testimony of its efforts towards customer satisfaction

INDUS is certified by British Standards Institution (BSI) on Information Security (ISO 27001) and Business Continuity (ISO 22301) Management Systems and also
Data Protection & Privacy 6 Low
secured ISO 9001 certification, which speak about its extensive efforts towards data protection
Diversity ratio (gender and physically challenged) stood at ~10.4%, out of which 21.5% employees are assigned to field role; the company’s focus remains on
Gender & Diversity 4 High
increasing and encouraging women talent
INDUS has launched the last mile connectivity programme for engaging with ~1,248 employees and 4,466 off-roll staff; attrition rate stood ~8.37% with internal
Employee Engagement 6 Low
succession rate of ~75%; total man-days of training stood at 1,295
INDUS spent Rs477mn in FY20 towards its ongoing long-term CSR projects (which directly affect over 4,70,000 lives); the company’s CSR projects include education,
Community Relations / Service 6 Low
environment sustainability, sanitation, disaster relief and skill development and livelihood opportunities

Human Rights 5 Medium While INDUS does not have a specific human rights policy, it follows Bharti Airtel’s Code of Conduct, which is extended to all employees and contractors

Labour Standard 4 High The company does not have a separate labour policy; it did not receive any labour-related complaint in FY20

Social Score (%) 53% Low

6
 Governance
The audit committee comprises of 4 independent directors as member (one ceased to be a member); the committee met four times in FY20 and all the directors
Audit Committee Structure 6 Low
were present in all four meetings

Bribery & Corruption 7 Low INDUS follows Bharti’s Code of Conduct relating to ethics, bribery and corruption

Average percentage increase in the remuneration of employees excluding Key managerial personnel (KMP) is 10.08%, which is in line with the average increase
Executive Compensation 5 Medium
in the remuneration of KMPs that is ~10.77%.
We maintain a neutral stance in the absence of any credible information in this regard; as INDUS is a tower infrastructure provider company, it does not have to
Lobbying 4 High
do lobbying

Political Contribution 2 High The company made charity and donation including Rs12mn paid to Electoral Bond Scheme 2018

INDUS follows Bharti Group’s policy framework for code of conduct, whistleblower rights and protection policies; the process is monitored and governed by an
Whistleblower Scheme 6 Low
independent and group level office of Ombudsperson

Governance Score (%) 50% Medium

Total Score Out of 200 101

Total Score (%) 51 Low

(Note: ESG Matrix is based on FY20 Annual Report Released by Bharti Infratel - Non Availability of Indus AR-2020)

Score For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Total Score (%) For < 50 Red High Risk For 50 Blue Medium Risk For > 50 Green Low Risk

7
Telecom Tower Sector – At a Glance
With annual rate of 27.4k and 7% CAGR, India’s telecom tower count touched 606k in 2020
from the level of 250k in 2007. This pace and scale of tower deployment was possible due
to the efficiency gain by the towercos, which also led to significant cost saving owing to
sharing model. The turning point for India’s telecom infrastructure was the granting of IP-I
(Infrastructure Provider) and IP-II licenses in 2008, which was followed by the telcos hiving off
their tower assets into separate companies, and sharing assets based on tenancy model.
Infrastructure sharing came with significant set of benefits for the telcos. Operators could
share cost of deployment and operations of tower site, while receiving better coverage and
higher penetration, with which the tower deployment cycle shortened from 3 months to
~45 days.
India’s tower industry is a mix of large and small companies. INDUS (Bharti Infratel +
Indus) is the largest towerco with 175,510 towers. While INDUS enjoys 32% tower market
share, Reliance Jio Infocomm (RJIL), public sector telcos (BSNL+MTNL) and American Tower
Company (ATC) enjoy 24%, 14.5% and 14% tower market share, respectively. The Top-4
companies hold 85% of total tower infrastructure, while the balance 15% towers are owned
by the companies, who have filed for insolvency like Reliance Communications’ tower arm
Reliance Infratel, GTL Infrastructure and small tower companies i.e. Tower Vision India and
Ascend Telecom.

Exhibit 1: Tower Market Share in India Exhibit 2: Growth of Tower infrastructure clocked 7% CAGR
7,00,000
6,06,300
6,00,000
3%
5% 5,00,000
14% 32% 4,00,000

8% 3,00,000 2,50,000

2,00,000
14%
24%
1,00,000

-
FY2007 FY2020

Tower Infrastructure
BHIN + Indus RJIL ATC Infra RCOM BSNL + MTNL GTL Infra Others

Source: Tower Invit, RSec Research, Reuters Source: Tower Invit, RSec Research, Reuters

8
Channel Check Takeaways
We undertook channel check to understand the business of the company. The key takeaways
are given in the following:

f Surge in data demand is well distributed between rural and urban regions. From tower
company perspective, there exists healthy addition/co-location opportunities in new
areas.

f The imminent launch of 5G technology shall be a great demand driver for the tower
companies. The initial 5G roll-out will come as loading, which depends on how each
operator rolls out 5G.

f There is no progress on fiber sharing opportunity – which is the biggest catalyst –

between the telecom operators and tower companies.

f Airtel sounded optimistic in its network densification activity as stated in its 3QFY21
investor conference call.

f Airtel’s emphasis on providing its customers deep indoor coverage as well as cover
deeper rural areas, augur well for the towercos, as more and more towers need to be
set up. However, execution continues to remain vital for the towercos.

f As the economy grows, low-hanging revenue opportunities can come to the

infrastructure providers like INDUS (tower infra). A huge number of small cells, smart
poles and in-building solutions are to be installed under the “Digital India” and “Smart
Cities” initiatives of Government of India. Further, the “Smart Cities” initiative also provides
an additional revenue stream for the towercos.

9
Management Concall Takeaways
f Densification is taking place at equal pace (50:50) both in urban and Tier-II/III markets,
as the operators are expanding their network both in urban and rural areas.

f The demand for small cells and fibers are set to increase drastically on the back of
imminent 5G opportunity. 5G will intensify competition amongst the operators, which
will increase the demand for high-quality, whereby the role of towercos comes to the
fore. Initially, 5G will be launched in higher (>3GHz) band, which will lead to higher
broadband penetration through last-mile fiber. As per the management, mission-
critical services including low-latency network are few years ahead. As no single
telecom operator can play out 5G opportunity, it has to be through bundle of network
operators, which augurs well for the towercos.

f The management has confirmed that the company has received the major chunk of the
exit revenue from VI. So the situation has changed in the current quarter. Exit quarterly
penalty run rate is seen at Rs1.8bn for next 4 quarter, which is expected to drop to
<Rs1bn in CY22.

f Customers have the right to exercise and move from fixed to pass-through model. As
both the operators and towercos consider the fixed energy model as the best aligned
one, they will be aligning all their customers towards fixed energy model in the coming
quarters.

f The management apprised that the company is still at sub-30% level as far as the fiber
coverage is concerned. As the role of infrastructure providers have certainly gone up, it
is high time to do capex, which will help in reducing turnaround time to cash in on the
5G opportunity.

f The operators give exit notices as per their network integration plans. However, billing
continues as they take a couple of months to finalize their network plan. The Master
Services Agreement (MSA) allows every operator to exit some percentage of sites on
annual basis (needed to be finalized at the end of the year).

10
Merger Update
f The company received the formal order from the NCLT in Oct’20 following which the
merger scheme became effective on November 19, 2020.
f As part of the scheme, Vodafone Idea (VI) had elected to receive cash for its 11.15%
shareholding in erstwhile Indus Towers, which amounted to Rs37.6bn. For their 42%
and 4.85% shareholding in erstwhile Indus Towers, Vodafone Group Plc and Providence
were allocated 758mn and 87mn equity shares aggregating to 28.12% and 3.25%,
respectively in the post-issue share capital of the company.
f Bharti Airtel, which held 37.63% following the above allotment, acquired an additional
stake of 5% from the open market taking its holding to 41.73% in the company. Bharti
Airtel and Vodafone Group are classified as promoters of the company and they own
69.85% as on Dec’20.
f Both the parties had agreed to a security package for benefit of the company, which
could be evoked in event VI is unable to satisfy certain payment obligations under its
MSA. This included a premium payment in cash of Rs24bn by VI to the company in
respect of future obligations under the MSA.
f A primary pledge of 190mn shares is owned by Vodafone Group in the company for
which the creation process (for primary pledging) is underway. Overall, the security
package provides INDUS with a payment cover of 1 year for operational payments due
from VI.
f Final merger ratio of 1,514 shares of Bharti Infratel for every 1 share of INDUS was less
than 1,565, as per the original press release of Apr’18.

Exhibit 3: Bharti Infratel Exhibit 4: Indus Exhibit 5: Merged Entity

4.85%
11.15% 19.80%

36.15% 42% 41.70%

7.10%
53.51% 3.30%

42%
10.34% 28.20%

Bharti Airtel KKR/CPPIB Other Public Shareholders Bharti Infratel Vodafone PLC VIL Providence Bharti Airtel Providence KKR/CPPIB Other Public Shareholders

Source: Company, RSec Research Source: Company, RSec Research Source: Company, RSec Research

11
Key Charts

Exhibit 6: Addition of tenancies a key challenge for INDUS

f As we believe the telcos would focus more on revenue-linked 2.4
capacity creation, their incremental capex will be towards
2.2
software up-gradation, deployment of new radio and small
2.0
cells. As these deployments are unlikely to support sharing
models, the role of towercos will diminish to being utility 1.8

infrastructure providers. Thus, the linear tenancy is unlikely to 1.6

From FY14 onwards, it
witness any meaningful upside for INDUS in the next 3 years. 1.4 increased till FY18, post
which it declined and has
1.2 remained stable
1.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Tenacy Ratio - BHIN (x) Tenacy Ratio - Indus (x)

Source: Company, RSec Research

Exhibit 7: Tenancy ratio falling and getting stabilized at ~1.82x

f Data usage peaked in 9MFY21 on the back of COVID-led 3.0
lockdown, co-location addition stood at 7,199, which was 2.5 2.36 2.41 2.38 2.30
2.22
broadly in line with the total tower addition of 6,600 (means 2.04
2.0 1.89 1.88 1.87 1.86 1.85 1.85 1.84 1.83 1.82
lower than 1.82 tenancy ratio).
1.5

1.0

0.5

0.0
Q1FY18

Q1FY19
Q2FY18

Q3FY18

Q4FY18

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q1FY21
Q2FY20

Q3FY20

Q4FY20

Q2FY21

Q3FY21
Tenancy Ratio Dilution (x)

Source: Company, RSec Research

Exhibit 8: VI’s AGR dues repayment schedule @ rate of 8% interest rate

for next 10 years
f VI’s AGR dues repayment suggest that VI will need sufficient 900
liquidity to sustain ahead. VI’s liquidity situation remains critical, 800
80.4
which would further lead to the loss of co-locations for INDUS. 700 80.4
600 80.4

500 80.4
Rs bn

80.4
400
80.4
300 80.4
200 80.4

100 80.4
80.4
0
Idea FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31

Source: Company, RSec Research

Exhibit 9: Calculation of Fair Value

f In light of decadal low tower tenancy ratio, no scope for further WACC (%) 11
rise in rentals, likely client concentration risk, delay in hiking Terminal EBITDA multiple 1
tariff hike and launch of 4G/5G-enbled smart phones by Jio Terminal EBITDA 1,42,859
+ Google, we initiate coverage on INDUS with SELL and a DCF- Terminal value 1,45,716
based 2-Year Target Price of Rs201. PV of terminal value 68,097
PV FCFF 4,79,878
Enterprise value 5,47,975
Less Net debt 7,081
Equity value 5,40,894
Outstanding shares (%) 2,695
Fair value (Rs/sh) 201
Source: Company, RSec Research
12
Rationale for SELL Recommendation
Our SELL recommendation is based on the following premises:
I. Tenancy Ratio at Decadal Low; Linear Addition of Co-location is Challenging
II. VI’s Survival is under Threat – A Big Concern for INDUS
III. Competitively Higher Rentals – No Scope for Further Rise
IV. Likely End of Exit Penalty in 2HFY23 to Drag Rentals
V. 4G/5G-enabled Smart Phones by Jio & Google – 2G/Data Subscribers Base of VI/
Airtel at Risk

I. Tenancy Ratio at Decadal Low; Linear Addition of Co-location is

Challenging
Tenancy ratio of INDUS, which peaked in FY17 to the level of 2.34x due to presence of ~8
telecom operators, witnessed a major fall to 1.87x in FY19 post merger of Vodafone and Idea
Cellular, which led to mass exit of co-location (VI and others exited ~61k co- location). Non-
linear co-location addition continued since FY19, which led to tenancy ratio to touch 10-year
low of 1.82x in 3QFY21. We believe 5G launch in India is couple of years away and the telcos
are working on Open-RAN model to minimize the capex. As we believe the telcos would
focus more on revenue-linked capacity creation, their incremental capex will be towards
software up-gradation, deployment of new radio and small cells. As these deployments
are unlikely to support sharing models, the role of towercos will diminish to being utility
infrastructure providers. Thus, the linear tenancy is unlikely to witness any meaningful
upside for INDUS in the next 3 years.

Exhibit 10: Addition of tenancies a key challenge for INDUS

2.4

2.2

2.0

1.8

1.6
From FY14 onwards, it
1.4 increased till FY18, post
which it declined and has
1.2
remained stable
1.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Tenacy Ratio - BHIN (x) Tenacy Ratio - Indus (x)

Source: Company, RSec Research Estimates

Exhibit 11: Data consumption jumped by 3x over FY18 to FY21TD Exhibit 12: Tower & BTS Growth of Industry (nos.)
14.0 2500 90.0%

12.0 80.0%
2000 70.0%
10.0
60.0%
8.0 1500
50.0%
6.0
40.0%
1000
4.0
30.0%
2.0
500 20.0%

0.0 10.0%
Q1FY19
Q2FY18

Q3FY18

Q4FY18

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q1FY21
Q2FY20

Q3FY20

Q4FY20

0 0.0%
Dec'15 Dec'16 Dec'17 Dec'18 Dec'19 Aug'20
Total wireless usage per subscriber Tower BTS Growth (%) - RHS Growth (%) - RHS
per month (GB)

Source: TRAI, RSec Research Source: TAIPA, RSec Research

13
Data Traffic Peaked in 9MFY21; Tenancy Addition Remained Muted: In 2017-20, even
as India’s data traffic clocked 38% CAGR, outpacing 10% growth in 4G Base Trans-receiver
Station (BTS), the company’s gross tenancy addition remained muted. This clearly indicates
that the benefit of surge in data usage was limited for the towercos. Moreover, while
data usage peaked in 9MFY21 on the back of COVID-led lockdown, co-location addition
stood at 7,199, which was broadly in line with the total tower addition of 6,600 (means
lower than 1.82 tenancy ratio). This clearly suggests that in order to build and expand 4G
networks, the telcos rolled out new BTSs mostly on towers where they already had network
presence. Whilst data traffic surged due to higher demand, spectrum re-farming and
carrier aggregation, the telcos were able cater to this demand with minimal new tenancy
addition by deploying new BTSs. We believe this trend is likely to continue, going forward
as well, which will add very less tenancy for the towercos.

Exhibit 13: Tenancy ratio falling and getting stabilized at ~1.82x

3.0

2.36 2.41 2.38 2.30

2.5 2.22
2.04
2.0 1.89 1.88 1.87 1.86 1.85 1.85 1.84 1.83 1.82

1.5

1.0

0.5

0.0
Q1FY18

Q1FY19
Q2FY18

Q3FY18

Q4FY18

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q1FY21
Q2FY20

Q3FY20

Q4FY20

Q2FY21

Q3FY21

Tenancy Ratio Dilution (x)

Source: Company, RSec Research

Tenancy Outlook Remains Subdued; Addition Likely only from a Single Player: Airtel is
substantially enhancing its 4G coverage to retain its rural/semi-urban consumers, who are
shifting from 2G to 4G. But VI is just about managing to redeploy network infrastructure and
bolster capacity in key markets. In 2019, Reliance Jio signed a Master Services Agreement
(MSA) with the Tower Infra Trust (TIT) to use the latter’s towers. TIT is rolling out towers as
outlined in its placement document (page no. 252). As on Sept’20, TIT had 124,091 towers,
which it plans to increase to 174,451 by Mar’21. This compared to 5,068 towers built by
INDUS (merged entity) in FY20. The tenancy ratio of INDUS declined to 1.82x as of Dec’20
from 2.25x in Mar’18 and a peak of 2.32x at the end of FY17 due to rapid consolidation of
the sector. As of 3QFY21, INDUS had ~318,310 tenancies. While, Jio’s 4G network rollout is
largely done, we expect the near-term tenancies growth for INDUS to be driven by Airtel’s
4G network rollout, especially in rural areas to match Jio’s network coverage (Airtel’s current
coverage stands at 95% vs. Jio’s 99%). Contribution of VI to the overall tenancy growth is
expected to be minimal, as the management would focus more on profitable circles, going
ahead. Tenancy ratio was reduced to 1.83x in 9MFY21 vs. 1.86x in 9MFY20. We expect the
tenancy ratio of INDUS to fall from 1.85x in FY20 to 1.8x in FY24E.

14
II. VI’s Survival is under Threat - A Big Concern for INDUS
The Supreme Court directed the telcos to pay AGR dues in 10 years, with the first installment
starting in the year ending Mar’22, subject to an initial payment of 10% of the total demand
raised by the DoT and interest rate at 8% per annum. However, VI has paid only 13%
(Rs78bn out of Rs582bn) of its total dues. After initial upfront payment of 13% of total amount,
there is clarity on VI’s funding requirements. VI management is planning to raise Rs250bn
through equity and debt instruments. As per media reports, a consortium led by Oak Hill
Advisors (which includes Sixth Street, Twin Point Capital and Varde Partners among others)
has proposed capital infusion of up to US$2bn (Rs150bn). VI had Rs14.3bn in cash at the end
of 3QFY21 and raised Rs13.6bn (after Rs24bn prepayment) by selling 11.15% stake in INDUS.
Also, it is yet to receive tax refund to the tune of Rs60bn and the pending indemnity amount
of Rs64bn (from Vodafone Plc., next receipt after Mar’22). However, VI’s yearly cash outgo
for AGR dues comes to ~Rs80.4bn. Considering reduced capex (predominantly towards
maintenance) of ~Rs60bn/year, interest at 10% on debt (including new debt), spectrum
dues moratorium for FY21/FY22, and no hike in tariff from FY21 levels, VI will again need
to raise cash by end of FY23. Without tariff hike, it will continue to burn cash every quarter
despite low capex, which is also triggering subscriber loss. We estimate that VI will need
steep tariff hike by the end of FY23 to survive.

Steep Tariff Hike Seems Unlikely: The recent tariff increase by VI in post-paid segment
is limited to select plans and unlikely to have a major impact on revenue. Tariff hike in the
current environment seems unlikely at least till all private players decide to raise tariff (as
was the case in Dec’19). Given the competitive environment with a weak third player, there
is a need for tariff hike to restore health of the sector, but it remains to be seen who would
take the initiative in this regard. Capital infusion alone without steep tariff hike is unlikely to
ensure sustainability of VI’s operation. However, only a significant and sustainable increase
in ARPU can help VI to survive in the long-term. We believe singular tariff hike could lead to
substantial subscriber loss and increase the pressure on operating cash flow of VI, which
does not augur well for INDUS, as hike in tower rental seems to be untenable at this juncture.
Financial distress of the telcos vindicates our assumption of no meaningful up-tick in rental.
Further, the balance sheet of the telcos should be supportive not only for AGR payment but
for the upcoming 5G launch, which requires capex for spectrum, fiber and tower.

Exhibit 14: VI will require steep hike in tariff by the end of FY23E
Particulars FY21E FY22E FY23E
AGR Payment- Rs bn/year (10 years) 80.4 80.4 80.4
Capex (Rs bn) 41 60 60
Interest (Ex-Spectrum Liability)- Rs bn 23.6 23.6 23.6
Interest on new debt 5 10 10
Payment for spectrum (Rs bn) 0 0 160
Total cash EBITDA required (Rs bn) 150.4 174.0 334.0
EBITDA (Rs bn) 72.5 72.5 72.5
Incremental EBITDA 77.9 101.5 261.5
Assumed pass through of revenue (%) 65 65 65
Incremental revenue (Rs bn) 119.8 156.1 402.5
Subscribers (mn) 263.8 263.8 267.8
Avg Subscribers (mn) 274 262.6 265.8
Incremental ARPU over FY21E (Rs) 36.5 49.6 126.1
ARPU estimate for FY21 (Rs) 125.3 125.3 125.3
Incremental ARPU required (%) 29 40 101
Source: RSec Research estimates

15
 Exhibit 15: VI to have funding gap without tariff hike even after fund and equity
infusion of Rs 250 bn
Particulars FY20A FY21E FY22E FY23E FY24E
Revenue Level (FY21) 439.0 439.0 439.0 439.0
EBITDA - IND AS 116 (FY21) 158.8 158.8 158.8 158.8
EBITDA - Adj for IND AS 116 (FY21) 72.5 72.5 72.5 72.5
AGR Payment - Rsbn/year (10 Years) 0.0 (80.4) (80.4) (80.4)
Capex (Rs bn) (41.4) (60.0) (60.0) (60.0)
Interest (Ex-spectrum liability)-Rs bn (23.6) (23.6) (23.6) (23.6)
Interest on new debt (5.0) (10.0) (10.0) (10.0)
Payment for spectrum dues (Rs bn) 0.0 0.0 (160.0) (160.0)
Cash Burn 2.5 (101.5) (261.5) (261.5)
Vodafone tax refund 60.0
Fund from equity infusion 150.0
New Debt 100.0
From BHIN stake sale (11.5%) 13.6
AGR Dues, MF & SUC charge already (50.5)
paid
Cash at the end of the period 24.8 300.4 198.9 1.4 (260.1)
Source: RSec Research estimates

Exhibit 16: Airtel’s AGR dues repayment schedule @ rate of 8% Exhibit 17: VI’s AGR dues repayment schedule @ rate of 8% interest
interest rate for next 10 years rate for next 10 years
450 900

400 41.4 800

80.4
350 41.4 700 80.4
300 41.4 600 80.4
41.4 80.4
250 500
Rs bn
Rs bn

41.4 80.4
200 400
41.4 80.4
150 41.4 300 80.4
100 41.4 200 80.4

50 41.4 100 80.4

41.4 80.4
0 0
Airtel FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 Idea FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31

Source: Company, RSec Research estimates Source: Company, RSec Research estimates

Monthly Subscriber Loss Continues despite No Tariff Hike in Pre-paid Segment: VI

continues to witness subscriber churn. The company continued its losing streak even though
the decline in active subscribers decelerated by 1.5mn to 257mn in Dec’20 compared to
3.4mn loss in Sept’20. Its market share in terms of both gross/active subscribers fell by
30bps/20bps MoM to 25.6%/26.3% in Dec’20 largely due to continuous loss of subscribers
led by weak network capabilities and speculation around business continuity (given
its massive outstanding AGR dues). VI added mere 0.6mn mobile broadband (MBB)
subscribers in Dec’20, taking its total subscriber base to 137mn. Its market share shrank
marginally (10bps) to 16.9%. Despite no tariff hike in pre-paid plans, VI’s continuous fall
in market share in telecom/MBB space suggests that it can only raise tariffs at the risk of
further erosion in subscriber base.

16
Exhibit 18: Mobile Subscribers market share chart-monthly basis from FY18 till Dec’20
120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%
Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

Bharti Vodafone Idea RJio Others

Source: TRAI, RSec Research

Exhibit 19: Mobile broadband market share

120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%
Dec-18

Dec-19
Jun-18

Jun-19
Mar-19

Jun-20
Mar-20
Sep-18

Sep-19

Sep-20

Reliance Jio Bharti Airtel Vodafone Idea BSNL Others

Source: TRAI, RSec Research

Client Concentration – A Big Risk: Although Jio Infratel has been divested from its parent,
Reliance Jio, currently it does not have tenancy either from Bharti Airtel or VI. On the other
hand, while ATC India caters to all the three private players, INDUS caters primarily to
Airtel and VI. Based on the current telecom market in India (3+1 players), more number of
tenancy addition from RJIL to INDUS is unlikely. In case, VI becomes unviable for not being
able to meet AGR obligation and hike tariff on time, INDUS would witness the risk of single
client concentration.

17
III. Competitively Higher Rentals – No Scope for Further Rise
Consolidation in the telecom industry resulted in exit of some players, while merger of
Vodafone and Idea Cellular resulted in lower tenancy ratio, which declined to 1.82x as of
Dec’20 from 2.25x as of Mar’18, weakening the business profile to some extent. Before mass
exit of tenancies, erstwhile Bharti Infratel was charging Rs39,581 monthly rental per tenancy
(in FY19), which touched new high of Rs44,845 in 3QFY21 on the back of exit charges and
lower base effect. However, both these rentals are higher compared to implied monthly
rental of Rs34,650 charged by TIT. As far as TIT rentals are concerned, the major chunk of
infrastructure is mostly built-up for 4G LTE, which has covered >90% of India’s population.
Notably, 60% of towercos’ portfolio is fiberized and is well-positioned for 2,300MHz 4G
deployment in rural areas. The implied rental of TIT is lower than that of INDUS, which rules
out any incremental rise in rental rate, going forward.

Exhibit 20: Rental per location/month of INDUS vs rental of TIT (Rs) Exhibit 21: Reported monthly rental/location increasing with fall in
the tenancy ratio (Rs), (Tenancy ratio-RHS)
50,000 50,000 2.5
44,845
45,000 45,000
40,000 2.0
40,000
34,650 35,000
35,000
30,000 1.5
30,000
25,000
25,000 20,000 1.0
20,000 15,000
15,000 10,000 0.5

10,000 5,000
0 0.0
5,000
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E
-
Rental/location/month of TIT (Rs) Rental/location/month of Indus Tower (Rs) Reported Rental/location (Rs) Tenancy Ratio (RHS)

Source: Company, RSec Research estimates Source: Company, RSec Research estimates

IV. Likely End of Exit Penalty in 2HFY23 to Drag Rental

After mass exit of tenancies post merger of Vodafone and Idea Cellular, Bharti Infratel
and Indus started receiving exit penalties. In recent conference call, the management has
confirmed that the company has received the major chunk of the exit revenue from VI. So
the situation has changed in the current quarter (3QFY21). Exit quarterly penalty run rate
is seen at Rs1.8bn for next 4 quarter, which is expected to drop to <Rs1bn in CY22. Whilst
the management has also guided that it will consider exit penalty as normal revenue, we
expect the exit penalty to end by 2HFY23E (by which we can see normalization of rental
revenue). We expect downward pressure on rental front to continue.
Contracts of Airtel and VI are up for renewal in FY22-23, after which the contracts will be
renewed for only 5 years, while Reliance Jio has entered into a 30-year contract with TIT.
Further, the MSA is renewed even if only 33% of the tenancies are continued. So there
are twin risks for INDUS: (1) very short contract duration; and (2) VI’s potential reduction
in footprint, as it is forced to pay for spectrum in 2022 and it might do so by reducing its
sector footprint. As the telcos are in dire financial straits, they cannot bear a pricing reset
post 2022.

V. 4G/5G-enabled Smart Phones by Jio+Google – 2G/Data Subscribers

Base of VI/Airtel at Risk
India has ~700mn mobile broadband subscribers, while 300mn are still using 2G phones.
With a view to catching this feature phone users, Jio recently announced its collaboration
with Google to launch a new Android smart phone at an affordable price. Jio in association
with Google is expected to launch its affordable low-range 4G and 5G phones in India. It
plans to manufacture 200mn entry-level smart phones in the next two years. Apart from
Android operating system and Play Store, these phones will include cheap data packs (at
just Rs4,000). VI has data (2G+3G+4G) subscriber base of 137.5mn (out of total subscribers
of 271.8mn), while Airtel has data (2G+3G+4G) subscriber base of 174.7mn (out of total
subscribers of 336.2mn). This suggests that ~293.6mn non-data subscribers of VI and
Airtel can easily attracted towards the Jio + Google 4G/5G enabled smart phones. Any
substantial loss in 2G/data of subscribers of Airtel and VI to Jio does not augur well for
INDUS.

18
Outlook & Valuation
During its best days (with 8-9 operational telcos in FY15/FY16/FY17), erstwhile Bharti Infratel
was trading close to 21x 1 yr forward P/E or 11x 1 yr forward EV/EBITDA. Its premium valuation
multiple was backed by: (1) telcos witnessed peak ARPU/tariffs in FY16; (2) absence of
disruption caused by Jio launch; (3) data traffic was taking momentum on the back of
3G/4G-enabled smart phones; (4) telcos were increasing network efficiency/quality by
adding more towers in light of rise in data demand; and (5) INDUS (today’s merged entity)
added ~23K co-locations per year and touched the highest tenancy ratio of 2.35x in FY17.
Looking ahead, we expect the company’s revenue growth rate to slow down to 3% CAGR
over FY20-24E. We expect co-locations to be added at run rate of 8,000/year, which will
dilute its tenancy ratio to 1.8x. While we expect EBITDA and EPS to clock 3%/5% CAGR each
over FY20-24E, we expect its EBITDA margin at 50% in FY24E. In light of decadal low tower
tenancy ratio, no scope for further rise in rentals, likely client concentration risk, delay
in tariff hike and launch of 4G/5G-enabled smart phones by Jio + Google, we initiate
coverage on INDUS with SELL and a DCF-based 2-Year Target Price of Rs201 at implied
valuation of 3.5x EV/EBITDA of FY24E.

Valuation on Asset Replacement Basis: We assess the gross block of TIT on replacement
value basis, whose tower portfolio is one of the youngest in the industry (page 152). TIT’s
gross block stood at Rs380bn in 1HFY20 for 124,051 towers, which implies per tower cost
of Rs3.1mn. With total tower base of 169,002, INDUS’ Enterprise Value (EV) stood at ~Rs
594bn in FY20. This suggests that INDUS’ EV/tower (replacement cost per tower) stands at
Rs3.4mn, which is costlier compared to TIT.

Receivable Days: Steadily weakening credit profile of the operators, which prompted
changes in the credit period terms, has resulted in higher receivables cycle. This coupled
with significant dividend outflows exert pressure on the cash flow position of INDUS. Dividend
outflow is expected at ~90-95% of profit, which can impact the company’s liquidity position.

Exhibit 22: INDUS 1 Year Forward P/E Valuation Exhibit 23: INDUS 1 Year Forward EV/EBITDA Valuation
18.0

28.0 16.0

14.0

23.0 12.0

10.0
18.0
8.0

6.0
13.0
4.0

8.0 2.0
May-15 May-16 May-17 May-18 May-19 May-20 May-15 May-16 May-17 May-18 May-19 May-20

BEST_PE_12M_BF AVG STDEV+1 STDEV-1 BEST_EV/EBITDA_12M_BF AVG STDEV+1 STDEV-1

Source: Bloomberg, RSec Research Source: Bloomberg, RSec Research

19
Indus Tower’s valuations - DCF
Rs mn FY21E FY22E FY23E FY24E FY25E FY26E FY27E
Revenue 2,57,113 2,62,283 2,73,580 2,87,357 2,99,782 3,12,456 3,25,333
YoY (%) 2 4 5 4 4 4
EBITDA 1,29,274 1,34,809 1,36,727 1,44,194 1,45,915 1,52,226 1,58,732
Depreciation 52,339 52,220 53,785 54,485 53,848 51,184 51,923
EBIT 76,935 82,589 82,942 89,708 92,067 1,01,043 1,06,809
Reported Tax 16,559 18,098 18,272 20,248 24,646 28,173 31,041
Adjusted tax rate (%) 21.5 21.9 22.0 22.6 26.8 27.9 29.1
NOPLAT 60,377 64,491 64,670 69,461 67,421 72,870 75,768
CFO (before working cap) 1,12,715 1,16,711 1,18,455 1,23,946 1,21,269 1,24,054 1,27,691
Decrease/ (Increase) in working capital (243) 908 2,275 215 417 387 345
Cash flow from operations 1,12,473 1,17,619 1,20,730 1,24,161 1,21,686 1,24,441 1,28,036
CFO (%) 43.7 44.8 44.1 43.2 40.6 39.8 39.4
Net Capex (38,100) (39,850) (44,800) (38,200) (38,200) (38,200) (38,200)
Free Cash Flow to Firm (FCFF) 1,50,573 1,57,469 1,65,530 1,62,361 1,59,886 1,62,641 1,66,236
Growth in FCFF 4.6 5.1 (1.9) (1.5) 1.7 2.2
PV of FCFF 1,35,067 1,26,707 1,19,478 1,05,122 92,859 84,732 77,687
Source: RSec Research estimates

Calculation of Fair Value

WACC (%) 11
Terminal EBITDA multiple 1
Terminal EBITDA 1,42,859
Terminal value 1,45,716
PV of terminal value 68,097
PV FCFF 4,79,878
Enterprise value 5,47,975
Less Net debt 7,081
Equity value 5,40,894
Outstanding shares (%) 2,695
Fair value (Rs/sh) 201
Source: RSec Research estimates

20
Story in charts
Exhibit 24: Merged entity tower base over the years
1,60,000 5.0%

1,40,000
4.0%
1,20,000
3.0%
1,00,000

80,000 2.0%

60,000
1.0%
40,000
0.0%
20,000

0 -1.0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

BHIN INDUS Growth (BHIN) - RHS Growth (INDUS) - RHS

Source: Company, RSec Research estimates

Exhibit 25: Merged entity co-locations over the years

3,50,000 15.0%

3,00,000 10.0%

2,50,000 5.0%

2,00,000 0.0%

1,50,000 -5.0%

1,00,000 -10.0%

50,000 -15.0%

0 -20.0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

BHIN INDUS Growth (BHIN) - RHS Growth (INDUS) - RHS

Source: Company, RSec Research estimates

Exhibit 26: Rentals/Month over the years

50,000

45,000

41,623
40,000 36,963

35,000

31,517
30,000

25,000

20,000
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Rentals/Month - BHIN (Rs) Rentals/Month - INDUS (Rs)

Source: Company, RSec Research estimates

21
Exhibit 27: Tenancy Ratio over the years

2.4
2.3
2.2
2.1
2.0
1.97
1.9 1.82
1.8 1.81

1.7 1.72

1.6
1.5
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Tenancy Ratio - BHIN (x) Tenancy Ratio - Indus (x)

Source: Company, RSec Research estimates

Exhibit 28: Indus - Revenue over the years

2,90,000 6.0%
5%
2,80,000 4% 5.0%

4.0%
2,70,000
3.0%
2,60,000 2%
2.0%
1%
2,50,000
1% 1.0%

2,40,000 0%
0.0%

2,30,000 -1.0%
FY18 FY19 FY20 FY21E FY22E FY23E FY24E

Revenue (Rs Mn) Growth (RHS)

Source: Company, RSec Research estimates

Exhibit 29: Indus - EBITDA over the years

1,60,000 30.0%

1,40,000 26% 25.0%

1,20,000 20.0%

1,00,000 15.0%

80,000 10.0%

60,000 5% 5.0%
4%
2% 1%
40,000 0.0%

20,000 -5.0%
-7%
0 -10.0%
FY18 FY19 FY20 FY21E FY22E FY23E FY24E

EBITDA (Rs Mn) Growth (RHS)

Source: Company, RSec Research estimates

22
Exhibit 30: Indus - RoE & RoCE over the years
31.0%
30%
29.0%
28%
27.0%
26%
25.0%

23.0%
22%
21.0%

19.0%

17.0%

15.0%
FY20 FY21E FY22E FY23E FY24E

ROCE (%) ROE (%)

Source: Company, RSec Research estimates

Exhibit 31: Indus - Dividend payout ratio over the years

100.0% 98%

95.0%

89%
90.0% 88%

85.0%
80%
80.0%

75.0%

70.0%
FY21E FY22E FY23E FY24E

Dividend Payout (%)

Source: Company, RSec Research estimates

23
Profit & Loss Statement
Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E
Revenue 2,55,624 2,57,113 2,62,283 2,73,580 2,87,357
Growth (%) 1.0 0.6 2.0 4.3 5.0
Power & fuel 96,731 94,231 97,347 1,06,298 1,10,941
Rent 21,962 0 0 0 0
Employee benefits exp. 7,854 8,525 7,405 7,511 7,921
Other expenses 1,838 25,082 22,722 23,044 24,301
EBITDA 1,27,239 1,29,274 1,34,809 1,36,727 1,44,194
EBITDA Margins (%) 49.8 50.3 51.4 50.0 50.2
DDA 54,081 52,339 52,220 53,785 54,485
EBIT 73,158 76,935 82,589 82,942 89,708
Other Income 2,777 2,230 2,274 3,003 5,010
Finance cost 11,953 13,378 12,961 13,351 14,276
PBT 63,982 65,788 71,902 72,594 80,443
Tax 13,712 16,559 18,098 18,272 20,248
PAT 50,270 49,229 53,804 54,322 60,196
Net Profit Margins (%) 19.7 19.1 20.5 19.9 20.9
No of equity shares (Mn) 2695 2695 2695 2695 2695
EPS 18.7 18.3 20.0 20.2 22.3
Dividend Per share 17.8 17.8 17.8 17.8
Source: Company, RSec Research estimates

Balance Sheet Statement

Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E
Shareholder's funds 1,77,081 1,78,287 1,84,068 1,90,367 2,02,540
Share capital 26,949 26,949 26,949 26,949 26,949
Reserves & Surplus 1,50,132 1,51,338 1,57,119 1,63,418 1,75,591
Long term Borrowing 24,267 9,679 9,679 9,679 9,679
Non-Current Liabilities 1,56,895 1,42,307 1,42,307 1,42,307 1,42,307
Current Liabilities 1,29,115 99,717 1,01,323 1,05,124 1,07,200
Trade payables 33,454 32,590 33,667 36,763 38,368
Short Term Borrowing 52,105 22,748 22,748 22,748 22,748
Total Liabilities 4,63,091 4,20,310 4,27,698 4,37,798 4,52,047

Non-Current Asset 3,67,515 3,53,276 3,40,907 3,31,921 3,15,636

Net Fixed Assets 3,18,814 3,04,575 2,92,206 2,83,220 2,66,935
Capital Work-in-progress 2,928 2,928 2,928 2,928 2,928
Net Intangible Assets 363 363 363 363 363
Long Term Investment 17,002 17,002 17,002 17,002 17,002
Other Non-current Assets 28,408 28,408 28,408 28,408 28,408
Current Assets 95,576 67,034 86,792 1,05,877 1,36,411
Receivables 34,529 34,730 35,428 36,954 38,815
Other current assets 26,017 26,017 26,017 26,017 26,017
Cash & cash equivalents 35,030 6,287 25,346 42,905 71,578
Total Asset 4,63,091 4,20,310 4,27,698 4,37,798 4,52,047
Source: Company, RSec Research estimates

24
Cash Flow Statement
Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E
Profit after tax 50,270 49,229 53,804 54,322 60,196
Depreciation & Amortisation 54,081 52,339 52,220 53,785 54,485
Interest expense 11,953 13,378 10,687 10,348 9,265
Other Income 2,777 2,230 - - -
Operating Cash Flow before Working Capital change 1,13,527 1,12,715 1,16,711 1,18,455 1,23,946
Working Capital Inflow / (Outflow) (4,303) (243) 908 2,275 215
Net Cash flow from Operating Activities 1,09,224 1,12,473 1,17,619 1,20,730 1,24,161

Cash Flow from Investing Activities

Purchase of Fixed Assets (31,764) (38,100) (39,850) (44,800) (38,200)
Other Income 2,777 2,230 - - -
Net Cash flow from Investing Activites (28,987) (35,870) (39,850) (44,800) (38,200)

Cash Flow from Financing Activities

Proceeds from fresh borrowings/(repayment) (13,182) (43,945) - - -
Dividend paid (30,986) (48,023) (48,023) (48,023) (48,023)
Interest (11,953) (13,378) (10,687) (10,348) (9,265)
Net Cash flow from Financing Activites (56,121) (1,05,346) (58,710) (58,371) (57,288)

Total Increase / (Decrease) in Cash 24,116 (28,743) 19,059 17,559 28,673

Closing Cash and Bank balance 35,030 6,287 25,346 42,905 71,578
Source: Company, RSec Research estimates

Key Ratios
Y/E Mar FY20 FY21E FY22E FY23E FY24E
Valuation Ratio (x)
P/E 13.7 14.0 12.8 12.7 11.4
P/BV 3.9 3.9 3.7 3.6 3.4
Dividend Yield (%) 0.0 7.0 7.0 7.0 7.0
EV/Sales 2.8 2.7 2.6 2.4 2.2
EV/EBITDA 5.6 5.6 5.2 5.0 4.6
Per share data (Rs)
EPS 18.7 18.3 20.0 20.2 22.3
DPS (Rs) 0.0 17.8 17.8 17.8 17.8
Book Value 65.7 66.2 68.3 70.6 75.2
Return Ratio (%)
RoCE (%) 21.9 24.0 25.3 24.9 26.0
RoE (%) 28.4 27.6 29.2 28.5 29.7
Source: Company, RSec Research estimates

25
Company Overview
Indus Towers Ltd. (INDUS) – formed by the merger of Bharti Infratel and Indus Towers, which
was completed recently – offers ground based towers (GBT), roof-top towers (RTT), small
cells and smart poles to the telcos. After continuous dialogue with the telcos in terms of their
requirements, the company finalizes the location and builds the towers. INDUS now has
>175,510 towers and 318,310 co-locations (as on Dec’20) and a customer base covering
22 telecom circles, establishing a leading position in profitability and market value ranking.
Bharti and Vodafone Plc would continue to hold stake in INDUS, while VI raised Rs13.6bn
(after Rs24bn prepayment) by selling 11.15% stake in INDUS.

Exhibit 32: Product Offerings

Management Team
Name Designation Brief Profile
Mr. Bimal Dayal MD & CEO Mr. Dayal has been associated with erstwhile Indus Tower for >10 years in two different roles. He has over
three decades of overall leadership experience. He took over as CEO of Indus towers in 2016 and since
then has led the company to win Deming Prize and several other awards. Mr. Dayal has an Engineering
Degree in Electronics & Communication apart from advanced management programme from Harvard
Business School.
Mr. Vikas Poddar Chief Financial Officer Mr. Poddar – who is a chartered accountant with 25th All India ranking at CA intermediate level and
holds an MBA from NUS Business School (Singapore) – has two decades of experience in finance and
operations management.
Ms. Alka Selot Chief Technology Officer Ms. Asthana – who is an M.Tech from Maulana Azad Institute of Technology and PG programme in public
Asthana policy and management degree holder – has 25 years of experience in telecom industry with expertise
across networks and IT domains (strategy, policy, planning, engineering and operations).
Mr. Anil Gupta Chief Supply Chain Mr. Gupta – who is a Mechanical Engineer from Rajasthan University with an MBA degree in Finance –
Management Officer has over 20 years of experience in diversified roles in supply chain, project management, heading circle
business and energy management.
Mr. Biswajit Patnaik Chief Sales and Marketing An alumnus of ISB, NIS and IMD (where he pursued advanced management programmes) having cross-
Officer industry marketing experience for over 20 years, Mr. Patnaik brings in diverse insights into the complex
business environment of Indian telecom.
Mr. Pritpal S Kular Chief Human Resource Mr. Kular – a commerce graduate from Punjab University with PG in Personnel Management from Guru
Officer Nanak Dev University – brings in over 28 years of diverse experience across various facets of human
resources and business strategy.
Mr. Rajiv Arora General Counsel Mr. Arora Rajiv has close to 25 years of experience in multiple business environments across various
geographies and holding leadership roles. He has core expertise in telecom laws, legislative advocacy,
regulatory framework, corporate restructuring, litigation, contract negotiations, taxation, competition
laws, arbitration, industrial and employment laws, real-estate transactions, IPR laws and compliance
framework. He did DLL from Indian Law Institute, New Delhi and LLB from Jamia Millia Islamia.
Mr. Sarabhjit Singh Chief of Internal Audit & Mr. Singh – a Chartered Accountant and a certified internal auditor from the Institute of Internal Auditors
Assurance (USA) – has over 16 years of professional experience.
Mr. Tejinder Kalra Chief Operating Officer Mr. Kalra – who is an engineering graduate from Thapar Institute of Engineering & Technology and holds
an executive diploma in International Business from IIFT – brings with him over 30 years of experience in
telecom and telecom services industry.
Source: Company

26
Key Shareholders
Name of Key shareholders % Stake
Silverview Portfolio Investments Pte Ltd 4.85
Life Insurance Corporation of India 2.03
Artisan International value Fund 2.06
Canada Pension Plan Investment Board 2.24
Capital Income Builder 1.27
Source: BSE

Exhibit 33: Key Institutional Shareholders

1.27
Silverview Portfolio
Investments Pte Ltd
Life Insurance Corporation of
2.24 4.85 India
Artisan International value
Fund
Canada Pension Plan
Investment Board
2.06 Capital Income Builder

2.03

Source: BSE

27
Change in Ratings

We have now only BUY and SELL Recommendation and have discontinued HOLD
Recommendation.
We now have 2 Year Target Price and have discontinued with 1 year Target Price.

Score For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Total Score (%) For < 50 Red High Risk For 50 Blue Medium Risk For > 50 Green Low Risk

Digitally signed by Patil Yogesh

Patil
Sheshrao
DN: c=IN, o=Personal, title=0813,
pseudonym=368fdde7907f1789e7746
db5aff8f038b11294c2,

Yogesh
2.5.4.20=3cb3ba4ab25c70a72b7644f6
5c2ecd3c159e0e95d9f9b9537874d62e
ddb9b93a, postalCode=400065,
st=Maharashtra,

Sheshrao
serialNumber=63ecc99902febdf83e7e
2958268e21ee20a7dfed53779993a669
d140335e6aff, cn=Patil Yogesh
Sheshrao
Date: 2021.03.16 07:41:27 +05'30'

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