| Indus Towers Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ ' | ||||||
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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 strong market position of Indus Towers 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.
The ratings factor in a belief that Indus Towers will sustain its credit risk profile even in a scenario of significant loss of tenancies either due to further consolidation in the telecom industry or discontinuation of operations by a large customer. The potential weakening of business risk profile could be offset by sustenance of strong financial risk profile. Receivables have been stretched over the past few quarters because of the 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 launch of 5G in the near term, the capital expenditure (capex) for tower companies (towercos) -- including Indus Towers -- is expected to accelerate owing to higher requirement of infrastructure. However, Indus Towers is expected to follow a prudent financial policy towards capex and dividend. Net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio (including leases) should remain within 1 time over the medium term.
In line with the merger agreement, Indus Towers paid dividend of Rs 4,800 crore during the quarter ended March 2021. No dividend payment has been made so far in fiscal 2022. Dividend payout is expected to be in-line with the cash flows over the medium term. Any deviation to the expected dividend payout or 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 -- together referred to as Indus Towers because the two companies operate in the same business and have a common management.
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 Indus Towers has established a strong market position in the industry with 1.84 lakh towers and over 3.35 lakh co-locations as on December 31, 2021; it is well spread in all 22 circles. The entity has become India’s largest telecom towerco, 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 Financial risk profile is marked by adequate capital structure and comfortable debt protection metrics. Net debt to EBITDA ratio (including leases) 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 built to order. The company has added over 9,000 towers (net) in the past year ended December 31, 2021. With the expected launch of 5G in 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 5,000 crore for the medium term.
Besides, receivables are stretched over the past few quarters due to modest operating performance of one of the largest tenants of Indus Towers. Receivables rose to ~Rs 7,351 crore as on December 31, 2021, from Rs 3,829 crore as on March 31, 2021, thereby resulting in high working capital requirement. However, the 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, leading to high customer concentration. The average tenancy ratio declined significantly to 1.81 times as on December 31, 2021, 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 350 crore as on December 31, 2021. Cash accrual should more than suffice to fund capex as well as repay debt over the medium term. |
Outlook Stable Indus Towers will continue to benefit from its strong market position. Financial risk profile should remain supported by comfortable debt protection metrics and capital structure.
Environment, social, and governance (ESG) profile of Indus Towers The ESG profile of Indus Towers should boost its already strong credit risk profile.
The telecom tower sector is exposed to material impact on the environment owing to higher electricity requirement 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.
There is growing importance of ESG among investors and lenders. The commitment of Indus Towers to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowing 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, 2021, Bharti Airtel Ltd and Vodafone Group Plc own 41.73% and 28.12%, respectively, in the company; the remaining is held by the public. |
Key Financial Indicators (pro-forma)
NA: not available |
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 be issued |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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