Indus Towers Limited analyst Q&A

Thank you very much, sir. We will now begin the question and answer interactive session for all the participants who are connected to audio conference service from Chorus Call. The first question comes from Mr. Sachin from Bank of America.

Thank you for the opportunity. I have two questions. First question is on dividend. There was a general expectation that once backlog from Vodafone Idea is cleared, your Company will start giving dividends. Wanted to know the reasons for dividend being not declared and a committee being constituted. And any general thoughts that what would be a timeline when we could see a decision either on dividend or buyback coming? Related question to that is, we are acquiring Bharti's 12,600 towers. So the amount, roughly Rs. 20-odd billion what you're paying to acquire these towers , will that also be constituted when you guys consider paying dividends? So that's question number one.

So for both the questions, I'll take the first one, and maybe you can take the second one, Vikas. So as I explained in my opening remarks, I think -- the Company has generated a significant amount of FCF for the year, which was also aided by the clearance of the past dues . This enabled us to return a part of it to the shareholders through the buyback during the year. And as I discussed, the Company's strategy with the Board was to pursue growth, both organic and inorganic, some of that you saw in the results as well. And also to see how we can drive transformation on our sizable infrastructure and leverage digital solutions. And as I said earlier, I remain committed to rewarding the shareholders in implementing our strategy. Considering this, the Board has formed a committee to comprehensively assess various viable options and place it before the Board for its final approval. Now as far as the timeline is concerned, I think since the committee has been announced yesterday, I don't believe it's go ing to be a long - drawn process. And we'll make a suitable disclosure once we have an update on this one. As far as the Airtel towers question..

Yes. So Sachin, on the question about the amount, which was paid to Bharti Airtel for the purchase of towers, that will obviously be factored in by the Committee in deciding whatever distribution is decided later on.

Okay. And sorry, just to be clear that the committee is not going to take too much time. So within 3 months, a decision should be then by the time you end up reporting your 1Q numbers before that we should get a visibility on dividend or buyback, right?

Sachin, as I said, I'm not giving you timeline in months or weeks and what I'm expecting is it's not going to be a long-drawn process, and we'll keep you informed.

My second question is I just wanted to understand when should we start seeing tenancy improvement? Now I understand the incremental towers which have been acquired, these towers have dipped a bit of a tenancy, but from the business which is coming from Vodafone Idea ideally should lead to a tenancy improvement, which we are not seeing in the numbers. So wanted to understand, should tenancy remain range -bound in the range of 1.63 to 1. 65 or we should directly see that moving up going ahead?

I mean, Sachin, I'm not sure what you mean by that because if you remove the Tower acquisition, in Q4, we have deployed 4,200 towers or 4,300 new towers and the total tenancy has increased by more than 8,800. So I think there's a significant tenancy addition that we have seen in Q4 and like we saw in Q3 as well. So maybe because of the addition of Airtel to wers, you're not seeing the tenancy impact, but I believe the tenancy growth has been, in fact, a record growth in this quarter compared to what has happened in the last many years.

And that momentum should continue going ahead. Prachur?

I think we'll work with the customers to make sure that if based on their network expansion plans, we'll continue to grab the maximum share.

Okay, alright. Thanks

Thank you. The next question comes from Sanjesh Jain from ICICI Securities. Please go ahead.

Thanks for taking my questions. I have a couple of them. First, starting with the dividend. The dividend policy remains intact, right? 85% of the free cash flow will be distributed to the investors. Does the method of repaying the cash is to be decided or even the dividend policy is being rethought by the committee?

No. I think what the committee is going to focus on is the modalities of distribution of the cash, right. And if there is any discussion that is going to come up on the policy as well, they will look at it. But the primary aim of the subcommittee is to look at the modalities of distribution of the cash to shareholders.

And number two, we still have some debt on the book. What will be the priority in terms of cash distribution from the capital allocation perspective ? Is it to first go net debt free and distribute the remaining cash to the investor or we are okay with the small leverage on the balance sheet?

Again, Sanjesh, I don't want to pre -empt what the committee would decide. But what I know for a fact that, as I told you earlier, I think there are multiple elements here. You said that in addition, what we have to look at is the growth ahead of us in term s of what is the capex requirements for the growth in the times to come. And this is that the committee will make a call on how the cash has to be distributed or allocated.

Clear. My next question is on the growth. Again, Prachur, you mentioned in your opening remarks that we will look at both organic and inorganic options to drive the acceleration in the growth. What are we really looking at in the next 2 years in terms of an acquisition, if we have anything in the mind? And from an organic perspective, anything in the mind apart from the normal business of passive infrastructure?

No. When I'm talking about the growth, I'm talking about towers . Towers and IBS is growth . When I said inorganic, I meant if there is any opportunity available to do the consolidation we will do like we did for the Airtel towers in this quarter as far as the inorganic growth is concerned. While all our customers continue to rollout tower tenancies at different speeds, different quantities, and our idea is to make sure that we capture every single opportunity that is out there, whether it's a new tower or whether if there's an opportunity to bring more tenancies from other Companies to our site. So when I'm talking about growth, I'm focusing on the tower growth, which we have seen substantial growth over the last 2 years, and we want to keep the momentum going in the coming year as well.

Thanks for allowing me. Best of luck.

Thank you. We'll take the next question from Mr. Vivekanand Subbaraman from Ambit Capital. Please go ahead.

Thank you for the opportunity. At the time of announcing the purchase of towers from Airtel, you had mentioned that you will take loans to fund this transaction. Just to understand this better, in your balance sheet, I see that the borrowings are flat on a sequential basis. Does this mean that the transaction has not been funded with debt? That is question one. And secondly, I think to Sachin's question on dividends, I think Vikas, you said that the Airtel transaction will also be a consideration for payment of dividend. Why is that the case? Because it seems to contradict what you said in the press release when you announced the purchase of towers.

So Vivekanand to answer that, broadly, the intent is to fund the tower acquisition through borrowing. But because we have substantial collection in this year, we used that to basically purchase the towers, but it should be seen more as a timing issue. So a s and when the distribution decision is made, whatever is required will be done at that point of time in terms of borrowing.

Okay. And on my second question, which pertains to dividends. Will the amount that was paid out to Airtel, will it be available? Or has it already been earmarked for that purchase, so now it is not available for distribution? Just to clarify that. I know t he committee is still evaluating it, but because you had specifically called out that this transaction will be debt funded, we thought that this money is available for dividend distribution?

As Vikas mentioned earlier, I think it's purely a timing issue. The intent is to fund the transaction through borrowing. So it's only a cash management that was done.

We'll take the next question from the line of Mr. Aditya Suresh from Macquarie.

Two questions. First is, can you give us an update on the industry structure, in particular, kind of I will be curious to see what you're seeing on the ground with Summit and ATC combining operations?

I mean, to be honest, I've answered this question earlier in the previous calls as well. I mean, I don't think it impacts as much because the structure remains the same with the entity that has changed. So modus operandi I don't see much change and I can speak for Indus , our focus remains to make sure that we remain the market leader in terms of having the market share that is out there. But from an industry structure point of view, we don't feel any change per se with this particular change.

There's no migration which you're seeing, is that a fair understanding?

Yes, we only see positive migration towards us.

Okay. The second question is on the tower rentals per operator, which you're collecting right? So despite the increased 5G loading, despite the inflation is embedded in the contracts, we've seen that moderate, right? So in the context of kind of what you s aid about this aggressive market share capture plans, plus noting that kind of I appreciate that if a second operator kind of comes into these towers, all operators get a discount. How should we directionally think about your rental revenues per operator trending?

I'll take that, Aditya, so see, as far as the ARPT is concerned, like we have -- while we report this as a KPI but we have always maintained that there are several variables that impact this KPI. I just, maybe as a reminder, talk about some variables. Firs t of all, there is a product mix, there are towers which are -- traditional towers, which are more expensive in terms of rental, there are towers which are less costly. Then there is also the other thing, other variable, which is the standard escalation that kicks in every year. There are loading like 5G, 4G, etcetera, which are different on each tower. There's a renewal discount. There's also sharing discount. So as and when, let's say, you will see the co-location increasing or the sharing increasing, which was the case in Q4 with a lot of the VIL rollouts. There's obviously a sharing discount that kicks in, right, in the infra business that we are. So all that basically impacts the ARPT. The other technical point that you need to keep in mind is the acquisition that happened was pretty much towards the end of the year, right, in the last week of March. So while that sits in the tower numbers and the tenancy numbers, but when it comes to ARPT, obviously, that has a bearing in terms of the mathematical calculation, right? So that dilutes the ARPT simply by virtue of being there in the denominator. I think broadly, I mean, while this metric does indicate the trend, but with several moving parts, it's very difficult to really try to reconcile this with the revenue growth. Does that help, Aditya?

Thank you for the clarification.

The next question comes from Mr. Arun Prasath from Avendus Spark.

See when I talked about the 40,000 number, it was not tower, it was base stations. So I think it's not tower, 5G comes in form of loading at our towers as additional technology. So the addition is actually more on the technology side on an existing tower, not a separate tower.

Okay. So as such, there is the infill towers for 5G, it's not yet started on a broad basis?

No, I don't think.

It's not started yet. So first, the operators still need to have a full 5G coverage and then depending upon the data capacity needs we'll see. I mean, it happened in the 4G times, probably we'll see in the 5G times as well.

Okay, understood. Is there any instance where operators have felt congested in certain clusters and adding infill towers? Is that started in certain clusters or it's largely they are having lower utilization in the cluster level?

See, we would not be able to comment on the utilization of per cluster for the operators. We certainly see data growing and obviously, that's the reason why coverage and capacity infills, sites are continuing to grow. But of course, as the operators feel congested in any clusters, they certainly would come back and ask us to put up either new towers or they'll roll out more capacity on the same site but that's a continuous thing that is yet happening.

Okay. Actually, I'll just rephrase the question. So as and when the certain clusters grids get congested, is it the tendency to put more, say, equipments in the existing towers? Or have they reached a situation where they are thinking about the new infill towers?

I think it's a combination. I think we can't comment from an overall strategy for each operator. But I think it's a combination, wherever possible, they would add on the same tower. And wherever there is -- like last year or the year before last, there was a significant additions of lean towers. And that probably served the purpose of infill to an extent.

The next question comes from Mr. Saurabh Handa from Citigroup.

I had 2 questions. Firstly, again, just to clarify on the dividend bit, so your free cash flow in the fourth quarter was Rs. 39 billion. This obviously does not include the consideration for the tower acquisition, which was Rs. 18 billion. So if I take -- I mean what would be the number you would consider for dividend payout? Would you take Rs. 39 billion? Or would you take Rs. 39 billion minus Rs. 18 billion, which is Rs. 20 billion. So I assume your policy remains to pay out 100% of free cash flow? Just wanted some clarification because I think I've been a bit confused because previously, you had said that the acquisition would be completely debt funded and therefore, not have a bearing on shareholder returns?

Saurabh, if I take that question, I think this pretty much we tried to address and explain in the first round itself when Sachin had raised a very similar point. So while from a cash management perspective and because we have generated a very healthy cash in Q4 as well as on a full year basis, we have used that cash to fund the acquisition which obviously will lead to long -term growth and all that. And like I said, obviously, the committee will take into consideration all these things, they will obviously look at the free cash flow generation and then decide the distribution modalities and the amount, etcetera. And like I said, the fact that any acquisition, etcetera, or any inorganic growth needs to be funded through debt or leverage is basically more like a timing thing because there was surplus available, we used that, but we are open to sort of leverage in future depending on whatever decision gets taken.

Okay. Sure. And just my second question, you spoke about the ARPT being impacted by the denominator, which makes sense. So in fiscal 2025, the ARPT, which was 40,856 what would be the number if you hadn't adjusted for the acquisition? I'm just trying to get a sense of, say, compared to the previous financial year, I think the number you've declared was 41,198. So what would that number be now?

See, the number that you see is roughly a 1.1% growth sequentially that probably without the acquisition would have been something like a 2.5% growth sequentially.

Okay. So even the ARPT of that 41,893 includes the acquisition?

Yes, that includes the acquisition because, like I said, we included those sites in our overall portfolio in the last week of March. So as on 31st March, that was sitting in the portfolio and hence, the calculation.

I'm sorry, you said that would be how much without it, 2 point...

Roughly 2.5%, Saurabh.

We'll take the next question from Vivekanand Subbaraman from Ambit Capital.

Yes, I have a couple of follow-ups. So, number one is on the new composite billing scheme that you have rolled out. Earlier, you were mentioning about a very different kind of energy contract model, fixed energy model versus reimbursement. Is this composite billing in the nature of the fixed energy model. Can you please elaborate on how this could potentially influence your energy margins in the long term? That is question one. Secondly, based on your conversations with telcos, how is the fiscal 2026 capex outlook looking like for you?

So, on the first question, I would like to clarify when I was talking about composite billing, it was not composite billing for billing to our customers. It was a composite billing from DISCOMs for our sites because we have distributed assets, we get bills for individual towers. So, what we had been trying with the Government to see if we can get a composite bill in a given state that make the transactions a bit easier and much simpler to manage. So the composite billing was not from our customer point of view. It is a Government initiative to provide composite billing to large users so that they can have the billing settlements and things easier to do. So that's the clarification of the composite billing. What's the second question?

Capex outlook for FY26.

See, I think we remain confident that FY26 will also connect to a strong year of growth. While I can't comment specifically on what the operator plans are. But I believe our order book is quite strong that I'm seeing currently.

Yes. Just on that, one small follow -up. We saw that the capex has declined by around 24% in fiscal 25 versus 24. And this trend has been pretty much intact through the quarters. So should we take fiscal 25 as a new normal for capex? Or will it further go down from here?

Again, I don't specifically talk about any numbers. This year, we had a significant tower rollout and tenancy rollouts as well. Obviously, higher the tenancy is lower the -- tenancy is not the same cost as putting a new tower. So, I don't want to say what specific trend you will see. But all I can say, the tower and tenancy growth will remain strong in the coming year.

The next question comes from Mr. Kunal Vora from BNP Paribas.

First is maintenance capex seems a little higher this quarter. Any reason for that?

Yes. I mean, if I can answer. So typically, if you see Q4 is the time where we are setting ourselves for monsoon as well. So, I think typically, the maintenance capex every year Q4 sees a little bit of a jump because this is the time post monsoon. In fact, Q3 and both Q4 and Q1 typically see a higher number than the middle two quarters because post rain is when you can start thinking to go to the site and start deploying the infrastructure to get ready for monsoon or do whatever replacements you have to do. So it's not Q4 specifically. It's generally how the maintenance happens.

Understood. And on Energy margins, what I understood is there is a one-off impact because of which it looks higher, but otherwise normalized it's 2%. How are you looking at it going forward around 2% range or...

Well, Kunal, I mean, if you look at our energy cost, the energy cost is being managed pretty well. We have been running various initiatives like solar deployment, reducing diesel consumption, etcetera, even batteries, as we mentioned earlier in the discuss ion today, replacing our old batteries with new lithium-ion batteries, which are more energy efficient and so on. So, you see a lot of control on the cost. However, there are basically reconciliation issues and recovery issues, which is something that we are trying to sort out. And hopefully -- and the other thing is, of course, the Q4 number should not be seen as a benchmark simply because there is always a lot of seasonality in the energy business, right. So somewhere we will try to improve this going forward, but it's very difficult to put a number to this.

And on rental revenue on the way forward, how do we look at it? Like fourth quarter the new tower rental revenue did not come in, right? Or at least like it came a very small proportion of that would have come. So in 1Q, we should see a full reflection of the new tower?

Yes, you're right. So that's how it works. I mean typically, whatever rollouts happen in the quarter, the full quarterly impact of that is visible only in the following quarters. So just bear in mind that...

I was talking about acquired towers and not the...

Yes, acquired towers has a few days of revenue in this quarter, but of course, the next quarter will reflect the full quarter revenue.

Understood. But in that piece, what was the driver of rental revenue this quarter, 4.5% quarter- on-quarter in the recent number?

So broadly, I would say two drivers, Kunal. One is, of course, the healthy tower and tenancy or co-location additions that we have done. So that, of course, will keep driving. The other important driver is also whatever loading growth we get through 5G, etcetera, plus the annual escalations. So all these are basically driving. And then, of course, Q4 being end of the year, there are also some reconciliation benefits that are there sitting in the quarterly numbers. So all this has basically driven the roughly 4%, 4.5% top line or the core revenue growth that you see.

Any part of that would have been one-off? Then how do we think about that?

There is a one -off, which is roughly, let's say, 2.1 percentage points sequentially. So that is basically, like I said, the year-end reconciliation benefits that are reflected in this quarter.

The next question comes from Mr. Kishan Mundhra from DAM Capital.

I just have one question. So, in the previous quarter, you had announced your foray into EV charging infrastructure. So just wanted to understand if you have firmed up any plans on that front? And what is your capex that you expect to put into this business over the next 2 years?

Kishan, I think as I explained in the last earnings call as well, what we started to look at is the commercial pilot for the EV business. And based on the pilot results and if it gives us scale, then we would consider whether we want to expand or it's some thing that we'll hold back. So, I think currently, we're evaluating that pilot. And if it offers some scale, then we'll have a discussion. But if not, I think our focus will remain on the tower s. So we'll keep you posted on any decision on that front.

The next question comes from Chetan Sharma from Systematix Shares and Stock Limited.

Sir my question regarding the potential partnership between the Starlink and the telecom giants like, Airtel, Jio, and Vodafone. The question is that what is the role of the future o f the traditional towers? Would this collaboration render the towers redundant?

To be honest, I think it's a good question. But however, as of now, based on our discussions with the telecom operators and in general, I think there are limitations and commercial constraints as far as the satellite technology is concerned. So we don't se e that risk for a terrestrial network in the foreseeable future , right. And I don't expect that impacting us anytime soon.

The next question comes from Mr. Varatharajan Sivasankaran from Antique Limited.

At one point in time, you discussed about the possibility of entering into infrastructure like data centers. Is there any kind of a discussion on that? Do you see something like that happening in the future?

Honestly speaking, Varharajan, I don't think we ever discussed. I don't think we discussed data center from our side. There was some speculation in media. So I think that was a very speculative article that came out. So I don't think we have discussed that as an option currently because our focus remains on the tower growth primarily. So as of now, data center is not under consideration.

We'll take the next question from Mr. Sanjesh Jain from ICICI Securities.

Yes, Vikas, I got just one clarification. There is a line item in the cash flow which talks about the consideration paid for the acquisition of passive infrastructure of 1,800 crores. This, I thought is a payment for the Airtel, for the towers we bought, correct?

That's right, Sanjesh.

Because in many instances, we told that we haven't paid this consideration. I saw that it's been paid, right? There's nothing pending to be paid to Airtel from this perspective, right? Only Hexacom deal is yet to be consummated. Is that understanding right?

That's right. Yes.

Got it. That's one. Second, Prachur, I was just asking a question before I got disconnected. So if you look at the growth on the data side, it has materially decelerated despite FWA, one of the largest operator has reported under 20% growth on the data, the data consumption really showing pattern of saturating? And mind it, this is despite 5G being unlimited today. Once it cap, I think things may get only lower on the growth side. Do you think the demand for tower itself see a material decline and now that we have created so much of capacity on 5G? Do you think that the growth -- because again, if you look at industry wide, the tenancy addition has materially slowed down in last 1 year, any reason to believe that the growth will continue on the tena ncy addition, apart from Vodafone helping to up their coverage on 4G and 5G?

Obviously, see I mean towers business is not infinite. But if you see for the last 2 years, last year, we added what 25,000-odd tenancies. This year, we added another 35,000 odd tenancies or somewhere around that number. So from a year -on-year basis, our tenancy has remained elevated for the last 2 years. Now of course, this cannot be a permanent status. But as the urban periphery expands as the rural areas get more penetration of new technology for us, also our opportunity is to create lower cost solutions for the customer so that some of the towers, which may not be viable in the past can now become viable. So I think growth is for us to see how we can push the boundaries in terms of what we can offer to the customer. So some of the towers can become more viable for them at a lower revenue as well. So I think, while the organic growth may see limitations, but I still believe the next year or so will remain strong given the fact that the other customers are catching up to the network expansion. But at the same time, we'll continue to push the boundaries in terms of how we can create better solutions for the customers to come create more towers and tenancies which were earlier not possible.

Clear. One data keeping last question. Vikas. you said that we have consolidated or restated the numbers from 19th of November. That means the acquisition should have ideally reflected the full quarter impact, right?

Not so, it reflects the full quarter impact as far as the cost, opex and depreciation is concerned, Sanjesh. It is not a billable quarter because the operation handing over happened in the last week of March. So from a revenue perspective, it will be reflecting in the next quarter.

So we have booked all the costs not the revenue? Got it. So the cost and depreciation have been accounted for, but not the revenue?

Yes. This is as per the Indian Accounting Standards between group entities, if there is a common control business combination, then the reinstatement of financial needs to happen from the date of common control.

That's very clear. Thanks for answering all those questions and again best of luck for the coming quarters.

We'll take the next question from Mr. Aditya Bansal from Motilal Oswal.

So just wanted to understand the ARPT profile currently for the towers acquired from Airtel, like what would it be in the next year? What should we take?

See, the towers acquired from Airtel as of the acquisition date or the year-end date are largely single tenancy towers, right? So they will have the ARPT or the revenue in line with the MSA for single tenancy. So as and when we get more tenancy, then obvio usly, there will be some growth in terms of overall revenue for the tower and so on. But for the time being, they are reflecting largely the single tenancy revenues.

And like which circles, would this be pertaining to? And is there an opportunity to have an incremental tenant here?

Yes. So they are across the country pretty much in all circles. And of course, there is an opportunity which we will be working on.

Ladies and gentlemen, we will now conclude the question -and-answer session. I would now like to hand the conference back to Mr. Prachur Sah, MD and CEO, for closing comments. Thank you, and over to you.

Thanks, Michele. In summary, FY25 marked another strong year for Indus Towers driven by robust tower and tenancy additions as we retained a significant share of our customers' network expansion. Equally important, a major customer cleared its large overdue payments during the year, aiding the generation of strong cash flows. Notably, our customers are continuing with their rollout activities, providing us with an opportunity to secure a substantial share of their rollouts. We will continue to work towards strengthening our market leadership position through participation in cu stomer rollouts and investing in strategic opportunities. Thank you, and have a good day.

Thank you, members of the Management. Ladies and gentlemen, this conclude call. You may now disconnect your lines. Thank you for connecting to audio conference service from Chorus Call, and have a pleasant evening. Thank you so much.