Can Indus Towers’ 5G infrastructure play drive further gains after 110% surge?

The rapid rollout of 5G services across India marks an exciting moment in the country’s development. India is one of the fastest countries to implement high-speed connectivity.

With the government’s focus on digital transformation and efforts to make that vision a reality, India is well-positioned to adopt 5G technology and realize its full potential for economic growth, innovation and social development.

The rapid transition to 5G combined with high data consumption will continue to drive demand for passive digital infrastructure, both in terms of loading existing towers and building new towers.

Indus Towers contributes significantly to building the infrastructure needed for widespread use of 5G technology. Indus Towers is India’s leading passive telecom infrastructure provider and has deployed, owned and managed telecom towers and telecom structures for a variety of telecom service providers.

Indus Towers has also made huge profits over the past year. Last year, the company’s market share soared nearly 110%. The stock also reached a 52-week high of ₹315.20 on April 1, 2024. Over the past three months, the stock has returned nearly 48%.

If you’re wondering why the company’s recent performance has been good, the answer is Vodafone. As of October 2023, Vodafone Idea owes Indus Towers around Rs 5,600 crore. Vodafone Idea had refunded Rs 300 crore to Indus Towers in January 2023.

Citi Research said on February 27 that the fundraiser could provide further upside to Indus Towers and will be a key aspect to monitor. The note also stated that with the financing, Indus Towers could potentially recover about half of its past outstanding debt from Vodafone Idea over the next two years.

Now, let’s take a closer look at the article to find out what the future of Indus Towers looks like.

Indus Towers Company Overview

Indus Towers was formed through the merger of Bharti Infratel Limited and Indus Towers. With these combined strengths, Indus is now one of the world’s largest telecom tower companies.

As of December 31, 2023, Indus Towers Limited operates approximately 211,775 towers and houses 360,679 co-locations across 22 telecom zones in India.

Indus’ major customers include Bharti Airtel (including Bharti Hexacom), Vodafone Idea Limited and Reliance Jio Infocomm Limited, which are among India’s leading wireless telecom service providers by revenue.

India’s telecom industry has undergone significant consolidation, with the number of telecom operators declining from 14-15 at its peak to just five operators today.

Currently, Bharti Airtel Limited (“Bharti Airtel”) is a major private sector telecom operator in India, along with Bharti Hexacom Limited (“Bharti Hexacom”), Vodafone Idea Limited (“VIL”) and Reliance Jio Infocomm Limited.

Bharti Airtel is a major customer of Indus Towers along with Bharti Hexacom and VIL, contributing 80-85% to the company’s total revenue.

Indus Tower products and services

tower

To mount operator antennas at the appropriate height, Indus Towers deploys the passive physical infrastructure required to accommodate the customer’s active equipment, including base stations, transmission connections and microwave antennas.

Towers can range from typical lattice structures (e.g. ground-based towers, rooftop towers, or columns) to artistically designed lightweight hybrid columns, monopoles, or camouflaged towers that blend in with the background.

strength

To provide uninterrupted energy supply to telecom equipment, Indus Towers offers unique energy solutions that cost-effectively power its customers’ active equipment.

Where feasible, the towers will be fueled by grid energy from the main electricity board. Diesel is used when reliable grid energy is not available.

space

For residential telecom and power equipment, Indus Towers secures the required space from residential and commercial property owners (landlords) to place passive infrastructure in advantageous areas. The company also works with landlords throughout the entire process of hosting telecommunications infrastructure on their premises.

Tower Operations Center (TOC)

The Indus Tower Operations Center (TOC) is a state-of-the-art facility aimed at meeting one of the most basic requirements for the company’s entire operations. TOC centralizes activities to provide round-the-clock surveillance services to all Indus telecom facilities across India.

Indus Towers Finance

In fiscal 2023, Indus Towers recorded a growth in revenue of ₹28,382 crore, up 2.4% from ₹27,717 crore in fiscal 2022. After analyzing four years from FY2020 to FY2023, the company recorded a compound annual growth rate (CAGR) of 61.46%.

On the other hand, net profit declined noticeably, falling 68% from ₹6,373 crore in FY2022 to ₹2,040 crore in FY2023.

In FY23, Indus Towers maintained favorable financial metrics with return on equity (ROE) of 20.21% and return on invested capital (ROCE) of 25.71%.

Indus Tower’s future plans

Addition of 5G-led tenancy

Indus Towers added 2,163 tenants and closed 856. This resulted in a net increase of 1,307 co-locations, driven in part by pickup from network expansion. The tower, added in 1466, was in good condition.

Lean towers (not shown in occupancy and tower counts) increased by 1408 during the third quarter compared to 1535 in the second quarter. To date, the company has built ~5683 thinner towers and plans to accelerate its 5G rollout.

Indus expects continued strong traction based on growing data demand and network transition driven by competitive coverage, but it is important to note that lease additions and terminations will need to be closely monitored. Installation of lean towers/small cells, etc. should also be evaluated for their potential impact on growth.

Impact of VIL on Working Capital

The company’s receivables declined by around ₹1427 crore QoQ to ₹5062 crore due to provisions for doubtful liabilities. Adjusting for this, liabilities increased by ₹862 crore QoQ.

The management has recommended VIL to partially pay the bill by December 31, 2022, and said it plans to start paying the full amount along with early dues between January and July 2023.

Although some of the membership fees have been paid by December 2022, the payment situation for 2023 is unclear and no new payment plan has been proposed. The provisions included an unusual charge of ₹493 crore for impairment of revenue equalization reserve for Vodafone Idea membership dues.

Management said most of VIL’s previous debt has been repaid. However, it is important to remember that VIL will need to raise significant funds to compete in the market and meet supplier dues deadlines.

conclusion

In conclusion, Indus Towers is well positioned to benefit from India’s rapid 5G rollout. However, the company’s future growth and profitability will depend on factors including successful tenancy additions, efficient tower management and resolution of Vodafone Idea’s outstanding payments. What are your thoughts on the prospects of Indus Towers in the evolving 5G landscape? Do you anticipate any challenges or opportunities that could significantly impact the company’s trajectory?

Written by Narin Surya

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