Indus Towers engaging with Vodafone Idea to finalise payment plan, eyes improved cash flows, says MD

Indus Towers

Indus Towers, India's leading telecom tower provider, said it continues to engage with Vodafone Idea to finalise a payment plan and is anticipating a boost in free cash flows due to an expected rise in co-locations from Vodafone Idea and improved collection of past dues from the struggling telecom operator.

The country's leading provider of passive telecom infrastructure, including towers and communication infrastructure, also had “positive” discussions with the telco on participating in the network expansion plan following its fundraising.

“We have made collections against the past overdue for the third consecutive quarter from a major customer (Vodafone Idea] while sustaining 100 percent collection against the monthly billings,” Prachur Sah, Managing Director and CEO of Indus Towers, said during the Q1 earnings call on July 31.

Describing the last quarter as “eventful”, Sah said this was due to Vodafone Plc selling an 18 percent stake, and Vodafone Idea planning to raise debt after receiving equity funding. He said Indus is confident about collecting past dues and is looking forward to participating in the network expansion of the third-ranked telecom operator.

Sah said that Vodafone Group Plc continues to be a promoter with low shareholding according to the shareholder agreement, but their final position will be known after the buyback offer closes next month.

Vikas Poddar, CFO of Indus Towers, said the company continues to engage with Vodafone Idea to finalise a payment plan and is seeing a regular collection of our past overdue. “Our trade receivables decreased by Rs 760 crore, primarily due to better collections. We continue to engage with our major customers to finalize a payment plan and are seeing a regular collection of past overdue,” he added.

Vodafone Idea owes Indus Towers an estimated Rs 10,000 crore in past dues.

VI's network expansion

“We are also having positive discussions with the customer on participating in the network expansion plan following its fundraising and expect to see co-location additions this year. In summary, we are pleased to see the momentum in tower additions witnessed last year and continue to grow in this quarter as well,” Poddar said.

The company is bullish on Vodafone Idea’s 4G network expansion and 5G rollouts by other two telecom operators in the country. “Our cash flow situation should also improve further with a sustained collection of past overdue,” Poddar said.

The company said that clearing past dues from Vodafone Idea has given it confidence in the improvement of free cash flow.

“...the overall objective of this buyback is of course to basically distribute cash. We have not been able to pay dividend in the last two years, but the fact that we have started collecting our past dues gives us confidence in the free cash flow improvement going forward. So, that's one of the important reasons,” Poddar said.

Buyback plan

Indus Towers' board also approved the proposal to buy back shares worth Rs 2,640 crore on July 30. Indus will buy back 5.67 crore shares, representing a 2.107 percent stake in the company, at a price of Rs 465 per share.

Poddar said the company sees buyback as a tax-efficient way of distributing cash for a large group of its shareholders, especially in the current tax regime.

“From a company perspective, it certainly improves the financial ratios for us, and it also helps us in preserving our distributable reserves to some extent for any future dividend. Our dividend policy continues to be linked to free cash flow. So, at the end of the year, we will continue to assess our free cash flow situation. If the situation permits, we may consider a dividend again,” he said.

Indus, in the exchange filing, also added that Bharti Airtel Ltd will not participate in the share buyback. However, it said other promoters could participate.

Q1 performance

Indus Towers reported a consolidated net profit of Rs 1,926 crore for the April-June quarter on July 30, an increase of 42.88 percent from Rs 1,348 crore in the same quarter last year. Higher tenancies and record tower additions led to the gain during the period.

Indus added 6,174 macro towers and 6,340 corresponding co-locations in Q1. The total macro towers and co-locations increased by 13.9 percent and 7.8 percent year on year to 2,25,910 and 3,74,920, respectively, at June-end.

Sharing revenue per tower per month was down 6.6 percent year-on-year at Rs 68,562.

5G rollouts

The total number of 5G-based transceiver stations, BTS, deployed now stands at almost 450,000 after the operators accelerated the rollout within two years of the 5G spectrum option.

“We are pleased to see our loading revenues continue to increase and act as a lift to our growth. After reaching a certain level of penetration, probably over the next two to three years, 5G rollouts would require the addition of towers, primarily in the form of small cells to address network decongestion, which would aid the growth,” Sah said, adding Indus is well-placed to capitalise on this opportunity.

The company said that data consumption continues to experience a significant surge fuelled by the rapid rollout of 5G and the continuous shift of users from 2G to 4G networks. Total data consumption grew 29 percent year on year for all three telcos in March, the highest growth business in the last eight quarters.

“Being the leading passive infrastructure player in the country, we remain well-positioned to address the resulting demand…we are pleased to see that our tower additions continue to be strong. Underpinned by robust demand from one of our major customers and our efforts to sustain our market share in the customer's business,” Sah said.