Indus Towers Q2 FY25: Cash Flow Strength Meets Lower Tower Sharing

Indus Towers entered the second quarter of FY25 with a larger network, higher profit and much stronger cash generation. The Indian telecom infrastructure provider reported revenue from operations of Rs 7,465.3 crore for the quarter ended September 30, 2024, up 4.7% year on year. EBITDA, excluding other income, rose 42.0% to Rs 4,907.1 crore. Profit after tax increased 71.7% to Rs 2,223.5 crore.

The headline margin improvement was striking. EBITDA margin rose to 65.7% from 48.5% a year earlier. But the quarter needs to be read carefully. A large negative expense related to allowances for doubtful receivables supported the result. This improved reported profitability, although it does not necessarily represent a recurring reduction in the ordinary cost base.

The more durable part of the story was cash flow. Operating free cash flow reached Rs 2,545.3 crore, compared with Rs 398.0 crore in Q2 FY24. Lower capital expenditure and higher EBITDA both helped. For a tower company, where contracts are long term and assets are capital intensive, that improvement is important.

A larger network, but lower sharing per tower

Indus Towers owns and operates passive telecom infrastructure across all 22 telecom circles in India. At September 30, 2024, it had 229,658 macro towers and 379,236 macro co-locations. The company added 3,748 macro towers and 4,308 macro co-locations during the quarter.

That expansion reflects continuing requirements for coverage and capacity. India is adding 5G users and mobile data consumption is rising. The presentation cites 190 million Indian 5G subscribers in the first quarter of FY25, while 5G data consumption rose 28% quarter on quarter. Airtel has begun re-farming mid-band spectrum for 5G. Vodafone Idea has also announced a three-year network equipment arrangement to expand 4G coverage, launch 5G in key markets and add capacity.

Yet the operating data also shows the trade-off in rapid tower expansion. Indus's average sharing factor declined to 1.66 from 1.74 a year earlier. This measures average co-locations per tower. Sharing revenue per tower per month fell 4.6% year on year to Rs 68,080.

The implication is simple. The company is adding infrastructure faster than it is adding tenant occupancies on each tower. This does not make expansion unproductive by itself. New towers may be required for customer coverage commitments or future network needs. But lower sharing means revenue is spread across a bigger tower base, which can limit near-term tower-level monetisation.

The lean infrastructure portfolio remains a smaller but encouraging counterpoint. Lean products are used for localised coverage, network densification and capacity augmentation. Lean co-locations reached 11,360, up from 8,643 a year earlier. Revenue per lean sharing operator per month increased 27% to Rs 16,431. This gives Indus another route to address network needs that do not require a conventional macro tower.

Financial summary

Power and fuel remained the largest cost item at Rs 2,892.5 crore, marginally higher than a year earlier. It represented 38.7% of revenue. Repairs and maintenance increased 10% to Rs 383.2 crore, while employee expenses increased 6% to Rs 207.3 crore.

The major reason EBITDA rose much faster than revenue was the other-expenses line. Other expenses were negative Rs 924.8 crore, compared with a positive expense of Rs 275.7 crore in the prior-year quarter. This included negative Rs 1,076.6 crore in allowances for doubtful receivables. The presentation does not provide further detail on the underlying drivers of this movement. It is therefore sensible to distinguish the quarter's reported margin from the ongoing operating cost structure.

Contract visibility and balance-sheet context

Indus's core protection remains its contractual model. It has master service agreements with telecom operators, with annual escalation clauses in applicable charges. The estimated weighted average remaining life of its service contracts was 6.29 years at September 30, 2024. Future minimum lease payment receivables were Rs 114,779.7 crore.

This contract base does not remove customer or collection risk, but it provides more revenue visibility than a typical transaction-led business. It also helps explain why cash flow can be resilient when capital expenditure moderates.

The company reported adjusted funds from operations of Rs 3,765.0 crore in the quarter, up 57.7% year on year. Free cash flow was Rs 1,441.3 crore, compared with a negative Rs 1,027.0 crore a year earlier. Capital expenditure was lower at Rs 1,517.6 crore, after a period of heavier network investment.

Balance-sheet leverage remained meaningful because of lease liabilities. Net debt including lease liabilities was Rs 21,067.4 crore at September 30, 2024. Lease obligations made up Rs 17,406.9 crore of that amount. However, net debt including leases was 1.23 times last-twelve-month EBITDA, versus 1.75 times a year earlier. Interest coverage was 17.83 times.

The company also completed a buyback of 56.77 million shares at Rs 465 per share, aggregating to about Rs 2,640 crore excluding transaction costs. The buyback reduced equity share capital and increased Bharti Airtel's shareholding from 48.95% to about 50.01%. Indus remained a joint venture because of its board composition under the shareholders agreement with Bharti Airtel and Vodafone Group.

Energy efficiency is a cost-control lever

Energy is central to tower economics. Indus operated about 25,483 solar-powered sites and about 71,082 low-diesel-consumption sites as of September 2024. It is also improving electrification, deploying advanced storage and reducing air-conditioner usage. The company has initiated deployment of a lithium and valve-regulated lead-acid battery combination and plans a pilot of an aluminium-air energy generation solution for high-diesel sites.

These programmes matter because power and fuel is not a small line item. Energy cost per tower per month was Rs 42,328 in Q2 FY25. Lower dependence on diesel and better use of grid and renewable power can support margins over time, while also reducing emissions.

The sector backdrop is supportive but not linear. India had more than 450,000 5G base transceiver stations in operation according to the government statistics cited by the company. Deployment has moderated compared with earlier quarters. That could slow the immediate pace of tower demand. But rising 5G adoption, data usage and future coverage requirements still create a longer runway for network investment.

The quarter's central message

Indus Towers delivered a strong Q2 FY25 on profit and cash flow. The tower base expanded, lean products continued to gain co-locations, and long-duration contracts provided substantial revenue visibility. Reduced capital expenditure also helped convert earnings into cash.

The main issue to watch is monetisation of the growing asset base. Average sharing has fallen and revenue per tower has declined. In addition, the sharp margin expansion included a large doubtful-receivables allowance movement, which should be separated from recurring operating performance.

The company's next phase will depend on whether operator network investment, particularly for 5G coverage and capacity, translates into higher co-locations on its expanding tower base. Its long contracts, national scale and energy-efficiency work provide support. But sustained tower-level revenue productivity will remain the key operating measure to track.