Ask any tower owner, and they will tell you that the tower business is a great business. That is, until it’s not. Such is the case with Indus Towers, the largest tower company by tower count in India, according to Inside Towers Intelligence.
Indus Towers’ top line held up in FY23. The company reported consolidated revenue of $3.4 billion, up two percent on a year-over-year basis. But profitability fell through the floor. Consolidated EBITDA was $1.2 billion, down 35 percent YoY and Profit after Tax nosedived 68 percent YoY to $245 million. Operating free cash flow came in at $314 million, down 71 percent compared to FY22.
Similar to the U.S. market, the top tower companies in India serve the biggest mobile network operators, namely Bharti Airtel, Reliance Jio, Vodafone Idea (VI) and government-owned BSNL-MTNL. Together these four MNOs account for over 1.1 billion mobile subscribers. Airtel and Jio make up roughly two-thirds of that base with VI adding another 22 percent, according to Inside Towers Intelligence.
The tower companies each have a share of the top MNO business. Indus Towers counts Airtel, Jio and VI as its biggest customers and has long-term lease agreements with each of them.
VI appears to be the problem, however. In the past few years, the third-ranked MNO has struggled to keep up with payments for spectrum and financing obligations to the Indian government. Even with government relief, VI has curtailed its capital expenditure program, causing it to lose market share to both Airtel and Jio. Consequently, its cash flow is constrained. In turn, it has fallen behind on monthly lease payments to Indus Towers.
American Tower too is grappling with VI’s financial shortcomings, Inside Towers reported. In American Tower’s case, VI is ATC India’s largest customer, so the impact of late lease payments is more pronounced than with other towercos. Taking financial reserves in anticipation of a revenue shortfall that is likely to persist for some time, American Tower is evaluating the sale of a share of its equity in ATC India or possibly selling it entirely and exiting the Indian market altogether, Inside Towers reported.
Indus Towers’ losses were not received well by investors. To date, its share price on the Indian stock exchange has declined about 22 percent in the past year, according to Value Research. As a result, Indus Towers, like American Tower, had to set aside a big chunk of its revenue, $637 million or nearly 19 percent of total FY23 revenue, as provisions to absorb the losses it expects to incur if VI defaults on its lease payments. Since such provisions are reported as expenses, Indus Towers’ profitability took a beating.
The key takeaway here – when assessing tower company performance and outlook, keep an eye on the financial health of its tenants, especially where the lion’s share of revenues is concentrated among a select few MNOs.
By John Celentano, Inside Towers Business Editor
Reader Interactions