| Indus Towers Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Indus Towers Ltd (Indus Towers).
The ratings continue to reflect its strong position in the Indian telecommunication (telecom) tower market and healthy financial risk profile, supported by expectation of adequate cash accrual. These strengths are partially offset by large working capital requirement and high customer concentration.
Operating profits were impacted for the nine months through fiscal 2023 on account of provisioning made for doubtful debts amounting to ~Rs 5,300 crore due to subdued operating performance of one of the largest tenants of Indus Towers. The recent announcement by the government to convert interest related to AGR (adjusted gross revenue) dues into equity of the same tenant is a positive development, and its impact on the financial flexibility of that tenant in the near term will remain a monitorable.
The ratings factor in the expectation that Indus Towers will sustain its credit risk profile even if it loses tenancies either due to further consolidation in the telecom industry or discontinuation of operations by a large customer. The potential weakening of its business risk profile could be offset by sustenance of strong financial risk profile. Receivables have been stretched over the past few quarters despite high provisioning because of outstanding due from one of the large tenants. However, it is expected to correct in the near term and will remain a key monitorable.
With the rollout of 5G services by telecom operators in the near term, the capital expenditure (capex) for tower companies (towercos) is expected to accelerate owing to higher requirement of tower infrastructure. However, Indus Towers capex is always against a firm order with long-term contracts in place, which protects return on capital employed. Moreover, the company is expected to be prudent towards dividends till the time cash flows stabilise. No dividend was paid in fiscal 2022, and Rs 2,964 crore were paid in fiscal 2023. Any deviation in expected dividend payout or significant debt-funded capex will remain a key rating sensitivity factor. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Indus Towers and its wholly owned subsidiary, Smartx Services Ltd. This is because the two companies operate in the same business and have a common management. They are together referred to as Indus Towers.
Please Refer Annexure - List of entity consolidated, for details of the entity considered and its analytical treatment for consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong market position in the telecom tower business The company had 1.89 lakh towers and over 3.39 lakh co-locations as on December 31, 2022; it is well-spread in all 22 circles. The entity has become the largest telecom towerco in India with over one-third of the industry’s telecom towers. It is also the largest towerco globally, outside China, in terms of co-locations.
Healthy financial risk profile Capital structure and debt protection metrics are comfortable. Net debt (excluding lease liabilities) to Ebitda ratio is expected to remain below 1 time over the medium term. Sizeable dividend payout or any large, debt-funded capex, which may constrain capital structure, are key rating sensitivity factors.
Weaknesses: Large capital requirement The telecom tower industry is capital intensive, though capex is largely backed by firm orders and long-term contracts. The company has added over 4,644 macro towers (net) and 4,564 lean towers (net) in the 12 months ended December 31, 2022. With the ongoing rollout of 5G in the near term, tower addition could accelerate. Moreover, the company may add towers in under-penetrated areas and will also continue to invest in maintenance and upgradation of existing towers and undertake energy-efficient initiatives to curb diesel consumption. Annual capex is projected at over Rs 4,000 crore for the medium term.
Indus Towers has prudently adopted a provisioning policy in which it provides for receivables due from one of its largest tenants. Despite this, receivables rose to ~Rs 5,062 crore as on December 31, 2022, from Rs 3,829 crore as on March 31, 2021. However, working capital cycle is expected to improve in the near term.
High customer concentration Massive consolidation and exits in the Indian telecom industry have constrained the tenancies of Indus Towers. The average tenancy ratio declined significantly to 1.79 times as on December 31, 2022, from 2.29 times as on March 31, 2018 (prior to the merger). Accordingly, further consolidation in the telecom sector and its impact on the company remain monitorables. |
Liquidity: Strong Cash and liquid investments stood at over Rs 726 crore as on December 31, 2022. Cash accrual is expected at Rs 6,500-7,000 crore per fiscal over the medium term against term debt obligation of around ~Rs 1,500 crore in fiscal 2024. Unutilised fund-based limit stood at Rs 5,635 crore as on December 31, 2022. Debt obligation and capex will be met through cash accrual and unutilised working capital limit. |
Outlook: Stable Indus Towers will continue to benefit from its strong market position over the medium term. Financial risk profile should continue to be supported by stable debt protection metrics and capital structure.
ESG profile The environment, social, and governance (ESG) profile of the company supports its already strong credit risk profile. The telecom tower sector has a material impact on the environment owing to higher electricity requirements at network infrastructure with increasing data consumption. Waste associated with end-of-life network equipment and hardware can pollute land resources as well. Towercos are also exposed to significant regulatory risk and operational issues if network disruptions occur. Moreover, the systemic importance of telecom services to society and the economy explains the importance of accessible telecom tower network to the widest number of users. Indus Towers has continuously focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The commitment of the company to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Indus Towers provides tower and related infrastructure and deploys, owns and manages telecom towers and communication structures for various mobile operators. As on December 31, 2022, Bharti Airtel Ltd and Vodafone Group Plc owned 47.95% and 21.04%, respectively, in the company; the remaining is held by the public. |
Key Financial Indicators
NA: not available *Proforma numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with working capital demand loan #Yet to issue |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Annexure - Details of Bank Lenders & Facilities
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Working Capital Demand Loan | 300 | Mufg Bank | CRISIL A1+ |
| Short Term Loan* | 1750 | Axis Bank | CRISIL A1+ |
| Short Term Loan* | 750 | Federal Bank | CRISIL A1+ |
| Overdraft Facility* | 350 | Citibank | CRISIL A1+ |
| Overdraft Facility* | 350 | Kotak Mahindra Bank | CRISIL A1+ |
| Short Term Loan | 1050 | HDFC Bank | CRISIL A1+ |
| Overdraft Facility | 650 | HDFC Bank | CRISIL A1+ |
| Working Capital Demand Loan | 300 | Bank of Baroda | CRISIL A1+ |
| Bank Guarantee | 250 | HDFC Bank | CRISIL A1+ |
| Term Loan | 58.3 | Axis Bank | CRISIL AA+/Stable |
| Term Loan | 82.5 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 62.5 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 56.3 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 244.1 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 125 | Axis Bank | CRISIL AA+/Stable |
| Term Loan | 500 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 437.5 | MUFG Bank | CRISIL AA+/Stable |
| Term Loan | 750 | HDFC Bank | CRISIL AA+/Stable |
| Term Loan | 500 | HDFC Bank | CRISIL AA+/Stable |
| Proposed Long Term Bank Loan Facility | 2933.8 | Not Applicable | CRISIL AA+/Stable |
This Annexure has been updated on 24-Feb-2023 in line with the lender-wise facility details as on 23-Feb-2023 received from the rated entity.
*interchangeable with working capital demand loan
Criteria Details
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