Rating Rationale
February 23, 2023 | Mumbai
Indus Towers Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.11500 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.2500 Crore BondCRISIL AA+/Stable (Reaffirmed)
Rs.6000 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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:

  • The company aims to ensure zero diesel consumption at their tower sites. As on March 31, 2022, it operates ~78,667 green towers across its network, which accounts for ~42% of total tower count. To reduce diesel consumption, Indus Towers has undertaken projects such as Harit Sanchar, whereby mobile batteries are being used to replace diesel generators at sites. During fiscal 2022, CO2 emission reduction was 19,984 kg by solar plants and 20,067 kg by battery-operated MHE.
  • Indus Towers has also collaborated with renewable energy service companies to power towers with renewable energy and undertake community power development initiatives in rural areas.
  • About 33% of its board comprises independent directors, split in chairman and CEO positions, healthy investor grievance redressal and extensive disclosures.
  • An ESG committee of the board and ESG management council have been set up to further sharpen the focus on ESG efforts.

 

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

  • Sustained improvement in operating margin leading to cash accrual above Rs 7,000 crore
  • Technological changes requiring roll-out of new cell sites by telecom operators

 

Downward Factors

  • Significant weakening of operating performance owing to further consolidation of tenants or exit of any large tenant
  • Any substantial, debt-funded capex or dividend payout constraining debt protection metrics, such that net debt (excluding lease liabilities) to EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) ratio sustains above 1.5 times

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

Particulars (for year ended Mar 31)

Unit

2022

2021*

Operating revenue

Rs crore

27,807

25,673

Profit after tax (PAT)

Rs crore

6,276

4,975

PAT margin

%

22.6

19.4

Adjusted debt/adjusted networth

Times

0.25

NA

Interest coverage

Times

40.37

9.46

NA: not available

*Proforma numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue Size

(Rs Cr)

Complexity level

Rating assigned with outlook

NA

Working Capital Demand Loan

NA

NA

NA

300

NA

CRISIL A1+

NA

Short Term Loan*

NA

NA

NA

1750

NA

CRISIL A1+

NA

Short Term Loan*

NA

NA

NA

750

NA

CRISIL A1+

NA

Overdraft Facility*

NA

NA

NA

350

NA

CRISIL A1+

NA

Overdraft Facility*

NA

NA

NA

350

NA

CRISIL A1+

NA

Short Term Loan

NA

NA

NA

1050

NA

CRISIL A1+

NA

Overdraft Facility

NA

NA

NA

650

NA

CRISIL A1+

NA

Working Capital Demand Loan

NA

NA

NA

300

NA

CRISIL A1+

NA

Bank Guarantee

NA

NA

NA

250

NA

CRISIL A1+

NA

Term Loan

NA

NA

03-Mar-23 

58.3

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

30-Sep-23 

82.5

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

30-Sep-23 

62.5

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

30-Sep-23 

56.3

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

30-Sep-23 

244.1

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

01-Feb-24 

125.0

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

30-Jun-24

500.0

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

31-Oct-24

437.5

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

31-Mar-25

750.0

NA

CRISIL AA+/Stable

NA

Term Loan

NA

NA

03-Feb-26 

500.0

NA

CRISIL AA+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

2933.8

NA

CRISIL AA+/Stable

NA

Commercial paper

NA

NA

7-365 days

6000

Simple

CRISIL A1+

INE121J08046

Bonds

09-Dec-2022

8.20%

07-Dec-2024

750

Complex

CRISIL AA+/Stable

INE121J08038

Bonds

09-Dec-2022

8.20%

07-Jun-2025

375

Complex

CRISIL AA+/Stable

INE121J08020

Bonds

09-Dec-2022

8.20%

07-Dec-2025

375

Complex

CRISIL AA+/Stable

NA

Bonds#

NA

NA

NA

1000

Complex

CRISIL AA+/Stable

*Interchangeable with working capital demand loan

#Yet to issue

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Smartx Services Ltd

Fully consolidated

Wholly owned subsidiary

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 11250.0 CRISIL AA+/Stable / CRISIL A1+   -- 28-02-22 CRISIL AA+/Stable / CRISIL A1+ 18-03-21 CRISIL AA+/Stable / CRISIL A1+ 18-12-20 CRISIL AA+/Watch Negative / CRISIL A1+ --
Non-Fund Based Facilities ST 250.0 CRISIL A1+   --   --   -- 18-12-20 CRISIL A1+ --
Bond LT 2500.0 CRISIL AA+/Stable   -- 28-02-22 CRISIL AA+/Stable 18-03-21 CRISIL AA+/Stable 18-12-20 CRISIL AA+/Watch Negative --
Commercial Paper ST 6000.0 CRISIL A1+   -- 28-02-22 CRISIL A1+ 18-03-21 CRISIL A1+ 18-12-20 CRISIL A1+ CRISIL A1+
      --   --   --   -- 30-11-20 CRISIL A1+ --
      --   --   --   -- 30-07-20 CRISIL A1+ --
All amounts are in Rs.Cr.

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
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
The Infrastructure Sector Its Unique Rating Drivers
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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