Rising Costs And Shifting Demand Will Undermine Revenues In India

Key Takeaways

• Evolving wireless technologies and alternative connectivity solutions threaten to reduce demand for traditional tower infrastructure, putting long-term core revenues at risk.
  
• Rising operating costs, regulatory-driven capex, and heavy reliance on a few telecom partners create persistent margin pressures and heightened earnings uncertainty.
  
• Structural growth in data usage, supportive policy shifts, operational efficiency, industry consolidation, and technological upgrades together strengthen Indus Towers' prospects for sustainable, resilient earnings and value creation.

Catalysts

A telecom infrastructure company, engages in the operation and maintenance of wireless communication towers and related infrastructures for various telecom service providers in India.

• The accelerating adoption of small cell and distributed antenna systems may erode the need for traditional macro towers, causing a long-term decline in tenancy rates and pressuring Indus Towers' core rental revenue, particularly as single-tenant tower rollout grows relative to multi-tenant opportunities.
  
• Increasing momentum behind satellite-based broadband and non-terrestrial networks threatens to bypass terrestrial tower infrastructure, raising the risk of demand stagnation and cannibalization of recurring revenues as alternative connectivity solutions scale across India.
  
• Persistent energy margin losses-driven by high diesel consumption, reconciliation issues with utilities, and slower-than-expected deployment of smart meters-signal that efforts to improve cost structure are lagging, resulting in ongoing margin compression and reduced earnings quality.
  
• The urgen​t need to comply with tightening environmental regulations and undertake costly ESG-driven upgrades, such as large-scale solar installation and battery replacement, will significantly increase capital expenditure requirements, lowering free cash flow generation and putting net margins under sustained pressure.
  
• Customer concentration remains a core vulnerability, with the financial stability and tower rollout pace of key telecom partners uncertain-enabling potential renegotiations, defaults, or deferred payments that could severely impact revenue visibility and earnings stability over the long term.

Indus Towers Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Indus Towers compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Indus Towers's revenue will grow by 4.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 31.6% today to 17.2% in 3 years time.
• The bearish analysts expect earnings to reach ₹59.9 billion (and earnings per share of ₹27.53) by about August 2028, down from ₹97.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, up from 9.0x today. This future PE is lower than the current PE for the IN Telecom industry at 31.4x.
• Analysts expect the number of shares outstanding to decline by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

Indus Towers Future Earnings Per Share Growth

Risks

• The secular trend of robust, long-term growth in data consumption and 5G adoption across India underpins sustained demand for tower infrastructure, positioning Indus Towers to benefit from structural increases in tenancy and rental revenues, which could propel both revenue and cash flow higher over time.
  
• Government policy reforms, including the widespread adoption of Rights of Way (ROW) rules and renewable energy incentives, are facilitating faster, less bureaucratic tower rollouts and supporting energy cost optimization, which are likely to drive margin improvement and stability in future earnings.
  
• Indus Towers' operational focus on cost efficiency, including digitization, workforce centralization, and a major transition from diesel to solar and lithium-ion battery storage, demonstrates a clear path to ongoing reduction in operating expenses and improvement in EBITDA margins, thereby strengthening long-term net earnings.
  
• Consolidation opportunities in the tower industry and possible acquisitions, highlighted by the recent Airtel towers purchase, can expand Indus Towers' asset base and customer diversification, which would enhance long-term revenue visibility and resilience.
  
• Ongoing technological upgrades, proactive adoption of automation and AI across operations, and a strong focus on ESG and network reliability (reflected in 99.96% uptime and industry recognition) are creating competitive advantages that may attract and retain customers, thus supporting recurring revenues and growth in shareholder value over the long run.

Valuation

• The assumed bearish price target for Indus Towers is ₹300.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Indus Towers's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹595.0, and the most bearish reporting a price target of just ₹300.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹347.8 billion, earnings will come to ₹59.9 billion, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of ₹332.55, the bearish analyst price target of ₹300.0 is 10.9% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.