Indus Towers Q1 FY25: Higher Margins, Better Cash Flow, and a Tower-Usage Question

Indus Towers began FY25 with a stronger profit and cash-flow profile, even as a key operating measure pointed to lower revenue productivity across its growing tower network. For the quarter ended June 30, 2024, the telecom infrastructure provider reported revenue from operations of Rs 7,383 crore, up 4.3% year on year. EBITDA rose 29.4% to Rs 4,545 crore and profit after tax increased 42.9% to Rs 1,926 crore.

The result reflects the basic resilience of the tower model. Indus earns rental and energy-related revenue from telecom operators using its sites under long-term agreements. Its nationwide footprint covers all 22 telecommunications circles in India. At June-end, the company operated 225,910 macro towers and 374,928 macro co-locations.

But the quarter also showed why scale alone is not the whole story. The average sharing factor, which measures co-locations per tower, fell to 1.67 from 1.77 a year earlier. Sharing revenue per tower per month declined 6.6% to Rs 68,562. Indus is adding towers and co-locations, but tower additions are outpacing the improvement in sharing density.

Profit Growth Was Faster Than Revenue Growth

Revenue growth was modest, but profitability improved sharply. Sharing revenue rose to Rs 4,637 crore from Rs 4,335 crore a year earlier. Energy reimbursements were broadly flat at Rs 2,746 crore. Together, sharing revenue represented 63% of revenue and energy reimbursements represented 37%.

The reported EBITDA margin rose to 61.6% from 49.7% a year earlier. Total operating expenses fell 20% to Rs 2,838 crore. Power and fuel remained the largest cost at Rs 2,901 crore, up 3% year on year. Employee benefits and repairs and maintenance also increased.

The large movement was in other expenses, which were negative Rs 619 crore compared with an expense of Rs 215 crore a year earlier. The company said this included negative Rs 760 crore in allowances for doubtful receivables. That supported the quarter's reported profitability and is worth separating from the underlying tower and energy cost trend.

Network Expansion Continues, but Sharing Falls

Indus added 6,174 macro towers and 6,340 macro co-locations during the June quarter. The network ended the period with 225,910 towers, up 27,626 year on year, and 374,928 co-locations, up 27,049 year on year.

Those additions support a larger future revenue base. However, the sharing factor fell because the tower count grew faster than the number of co-locations. The closing sharing factor was 1.66, compared with 1.75 a year earlier. This matters because a higher number of operators on each tower generally improves the economics of an asset base that has substantial fixed costs.

The company is also building its lean infrastructure offering. Lean products are intended for network densification, local coverage gaps and smaller coverage areas. Net lean co-location additions were 492 in the quarter, taking the base to 11,178. Lean sharing revenue per sharing operator per month rose 24.3% year on year to Rs 16,301.

Cash Generation and Debt Moved in the Right Direction

Capital expenditure was Rs 1,882 crore in the quarter, down 15% year on year. After lease-liability repayments and capital expenditure, operating free cash flow was Rs 1,755 crore. Adjusted funds from operations rose 36.9% to Rs 3,377 crore.

The cash conversion helped reduce net debt including lease liabilities to Rs 19,178 crore at June-end from Rs 20,468 crore at March-end. Net debt including leases was 1.22 times last-twelve-month EBITDA, compared with 1.39 times at the end of FY24. Return on capital employed on a pre-tax, last-twelve-month basis improved to 20.9% from 19.4%.

Long contracts remain an important support for the business model. The average remaining service-contract period was 6.32 years at June-end. The company reported future minimum lease payments receivable of Rs 108,577 crore. That does not remove the need for telecom operator demand, but it gives the company a substantial base of contracted revenue visibility.

Energy Efficiency Is Both a Cost and Strategic Issue

Power and fuel remains Indus Towers' biggest operating cost. The company is addressing that through solar-powered sites, lower diesel consumption, electrification and battery-storage projects. It operated about 21,567 solar-powered sites and about 71,484 low-diesel-consumption sites as of June 30.

Indus has also initiated deployment of a lithium and valve-regulated lead-acid battery combination using a hot swappable battery transfer switch. It evaluated an aluminium-air energy-generation solution for high-diesel-consumption sites and plans a pilot deployment. These projects are relevant because lower diesel dependence can reduce both energy costs and emissions.

The external demand backdrop remains mixed. The presentation said India had close to 450,000 5G base transceiver stations in operation, but operator deployments had moderated versus prior quarters. Longer-term indicators remain supportive. The Nokia MBiT Index cited by Indus expects Indian 5G subscribers to rise from 131 million in 2023 to about 575 million by 2026. More data usage and network densification can create demand for additional infrastructure, though the timing depends on telecom operators' rollout plans.

Capital Allocation Comes Into Focus

After the quarter ended, the Board approved a proposal to buy back up to 56.77 million shares at Rs 465 per share. The tender-offer buyback would have an aggregate value of up to Rs 2,640 crore. It follows an improvement in cash generation and a reduction in net debt during the quarter.

Indus Towers enters FY25 with a stronger reported margin, better free cash flow and a lower debt burden. Its long contracts, national network and energy-efficiency work provide useful support. The question for the coming quarters is whether new tower construction, lean-site growth and eventual 5G densification can lift sharing density again. That will determine whether network expansion translates into stronger revenue per tower as well as higher total revenue.