Indus Towers shares fall over 4% after amidst dividend concerns on Africa foray; CLSA cuts target

Shares of Indus Towers Ltd. fell over 4% on Wednesday, September 3, after the company's board approved its foray into the African markets, beginning with countries like Nigeria, Uganda and Zambia.

The move is seen as a strategic attempt to expand Indus Towers' footprint across select international markets.

"These markets offer attractive prospects for revenue diversification, operational scalability, and long-term value creation," Indus Towers said, adding that they will leverage their robust financial position and anchor-customer relationship with Bharti Airtel to establish a strong and competitive presence in these regions.

However, investors could be concerned as this may lead to deployment of cash for these operations and not towards rewarding shareholders with dividends.

Indus Towers has not paid dividends to its shareholders since May 2022, over concerns of delayed payments from its key customer Vodafone Idea.

In May this year, Indus Towers was supposed to announced a bonus or buyback of shares or both at its board meet. However, the meeting was delayed, leading to a decline in the stock.

"After detailed deliberations, the board has decided to constitute a committee to comprehensively evaluate all options and dimensions and make a suitable recommendation to the board for a final decision," Indus Towers had said in its exchange filing back then.

A decision in this regard is yet to be made.

CLSA has maintained its "high conviction" outperform stance on Indus Towers, but has cut its price target to ₹520 from ₹595.

The brokerage believes that Indus Towers' plan of revenue diversification is unlikely to be significant as Nigeria, Uganda and Zambia account for less than 500 towers out of the 37,579 towers of Airtel Africa, of which, the company owns 2,179.

CLSA added further that it expected the management to focus on the company's capital structure by paying out high dividends. It also called the delay in dividends to be unjustified.

Citi also has a "buy" recommendation on Indus Towers, with a price target of ₹460 per share. It said that investors are concerned about dividend payouts, Vodafone Idea's sustainability, and Bharti Airtel's slowing rollout, which, according to Citi appears overdone.

On the flip side, there is a potential for medium-term growth and robust free cash flow generation as moderating capex intensity provides ample room for future returns. Current valuations remain favourable to peers and bear case analysis indicates limited downside, Citi added.

Shares of Indus Towers are trading 4.2% lower on Wednesday at ₹315.7. The stock is down over 30% from its 52-week high of ₹460.