| Indus Towers Limited | ||||||
| Long term rating Removed from 'Watch Negative'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its rating on the long-term bank facilities and bonds of Indus Towers Ltd (Indus Towers) from ‘Rating Watch with Negative Implications’ and assigned a ‘Stable’ outlook, while reaffirming the rating at ‘CRISIL AA+’; the rating on the short-term facilities and commercial paper has been reaffirmed at 'CRISIL A1+'.
The rating action factors in the expectation that the company will sustain its credit risk profile over the medium term 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 sustaining of strong financial risk profile.
CRISIL Ratings also takes note of the security package being held by Indus Towers as part of its merger with the erstwhile Bharti Infratel Ltd and erstwhile Indus Towers Ltd, which partly cushions Indus Towers in case Vodafone Idea Ltd (VIL) discontinues its operations within a defined time frame. The security package could be invoked in the event VIL is unable to satisfy certain payment obligations under its master services agreement (MSA) with Indus Towers. The package includes a prepayment in cash of Rs 2,400 crore, which was made by VIL to Indus Towers in respect of its present and future obligations under the MSA; a primary pledge over shares owned by Vodafone Plc in Indus Towers with a value of Rs 4,000 crore (as on Aug 31, 2020) and a secondary pledge over shares owned by Vodafone Plc in Indus Towers with a maximum liability cap of Rs 4,250 crore.
The ratings continue to reflect the strong market position of Indus Towers in the Indian telecom tower market and healthy financial risk profile, supported by expectation of strong cash accrual. These strengths are partially offset by high customer concentration and large working capital requirement.
Indus Towers is expected to follow a prudent financial policy towards capital expenditure (capex) and dividend. Net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio (excluding leases) is expected to remain within 1 time over the medium term. The telecom sector is susceptible to technological changes and high competitive intensity, which could impact cash accrual and thereby leverage ratio and hence will continue to be key monitorables.
In line with the merger agreement, Indus Towers paid dividend of Rs 4,800 crore during the quarter ending March 2021. However, the dividend payout is expected to be normal over the medium term. Any deviation to the dividend payout expectation will remain a key rating sensitivity factor. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Indus Towers and its subsidiaries. This is because all these entities, collectively referred to as Indus Towers, operate in the same business and have a common management.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of 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 1.75 lakh towers and over 3.18 lakh co-locations as on December 31, 2020; it is well spread in all 22 circles. The entity has become India’s largest telecom tower company, with over one-third of the industry’s telecom towers. It is also the largest tower company globally, outside China, in terms of co-locations.
Strong financial risk profile Financial risk profile is marked by a healthy capital structure and comfortable debt protection metrics. Net debt to EBITDA ratio (excluding 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 working capital requirement The telecom tower industry is capital intensive, though capex is largely build to order. The company has added about 18,000 towers (net) in the past five years, ended December 31, 2020. It may further 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.
High customer concentration Massive consolidation and exits in the Indian telecom industry have constrained the tenancies of Indus Towers over the past two years, leading to high customer concentration. The average tenancy ratio declined significantly to 1.82 times as on December 31, 2020, from 2.29 times as on March 31, 2018 (prior to the merger). Accordingly, further consolidation in the telecom industry and its impact on the company remain monitorables. |
Liquidity: Strong Cash and liquid investments stood at over Rs 3,000 crore as on December 31, 2020. Cash accrual from operations should suffice to fund capex as well as repay debt over the medium term. |
Outlook Stable Indus Towers will continue to benefit over the medium term from its strong market position and long-term contracts with large telecom players. Financial risk profile should continue to be supported by comfortable debt protection metrics and capital structure. |
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. Bharti Airtel Ltd and Vodafone Group Plc own 41.73% and 28.12%, respectively, in the company; the remaining is held by the public.
On a pro-forma basis, net profit was Rs 2,415 crore on revenue of Rs 7,582 crore during the nine months ended December 31, 2020, compared with Rs 2,649 crore and Rs 5,151 crore, respectively, during the corresponding period of the previous fiscal. |
Key Financial Indicators (pro-forma*)
* as reported by the company; N.A.: Not Available Note: The company started adopting Ind AS-116 with effect from April 1, 2019. Hence, financials for fiscal 2020 may not be comparable with that of fiscal 2019. |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
* Interchangeable with working capital demand loan |
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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
* Interchangeable with working capital demand loan |
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