Indus Towers: Jefferies cuts rating to underperform, gives reasons for bear outlook

Jefferies has downgraded Indus Towers to “underperform” and slashed its price target to Rs 375, citing emerging risks around tower contract renewals and sustained pressure from elevated capital expenditure, which could weigh on earnings growth and shareholder payouts.

The brokerage flagged that a significant portion of Indus Towers sites — around 10% — that were deployed in 2016–17 are up for renewal over the second half of calendar year 2026 and early 2027. This cluster of renewals comes at a time when industry wide tower additions are moderating, potentially intensifying competition among tower companies to retain tenants.

According to the broker, this dynamic may force Indus Towers to either offer discounts to retain clients such as Bharti Airtel and Vodafone Idea or risk losing tenancies to competitors. Even a limited discount to one operator could cascade across the entire tenant base, impacting revenues more broadly.

Jefferies has built in a conservative scenario where about 25% of such sites may not be renewed, leading to a 2-2.5% cut in revenue and EBITDA estimates for FY27 and FY28. Profit estimates have been reduced by up to 6%, reflecting both the renewal uncertainty and higher depreciation costs stemming from increased capital spending.

Capex remains a key overhang. Despite a nearly 30% decline in tower additions during the first nine months of FY26, overall capital expenditure rose sharply, driven by a surge in maintenance spending and continued investments in energy infrastructure such as solar solutions and lithium-ion batteries. Maintenance capex alone has nearly doubled year-on-year, indicating an ageing tower portfolio that will require sustained upkeep.

“Overall capex is expected to remain elevated in the range of Rs 72,000–80,000 crore annually over FY26-FY29, limiting free cash flow generation. This, in turn, is expected to cap dividend payouts, with Jefferies estimating free cash flow at only Rs 15-19 per share over FY27–FY29,” it said.Growth outlook also appears modest. The brokerage expects Indus Towers to deliver just 4% revenue CAGR and 3% earnings growth over FY26-FY29, with EBITDA margins likely to remain largely range-bound. The limited growth visibility, combined with renewal-related risks, could restrict any meaningful re-rating in the stock.Valuation has also been adjusted downward. Jefferies has cut its target multiple to 6.5x EV/EBITDA, aligning it closer to long-term averages, and sees a downside of around 14% from current levels.

While there are potential upside triggers, such as stronger-than-expected capex from Vodafone Idea or better renewal outcomes, the near-term risk-reward remains skewed to the downside, according to the brokerage.