ICRA has revised the outlook on the Indian telecom tower industry to Stable from Negative.
The implementation of revival package of the state-owned telco and planned / completed fund raising by some of the privately owned telcos has aided the improvement in the liquidity position; and thus, payments to the tower operators, ICRA noted.
ICRA had earlier revealed the outlook on the telecom tower industry to Negative, following the levy of AGR penalty on the telecom service providers. This was due to already stretched balance sheets leading to weakening of their credit profile and exerting pressure on the receivable cycle of the telecom tower companies.
There were concerns on the continuity of operations of one of the service providers, which may have led to tenancy losses for the tower operators.
“There has been a stabilisation in the telecom services industry, which has brought stability to the tower industry by, arresting the tenancy exits. Demand for telecom services, especially data, has witnessed a very strong growth, translating into consistent network expansion and upgradation by the telcos,” said Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA.
Given the consolidation in the telecom services industry in the past, tenancy ratios for tower companies declined to 1.3-1.5 times from historical highs of more than 1.8 times. These tenancy ratios are expected to become the new normal for the industry, given that it’s a 3+1 structure for the telecom services industry.
While the receivable cycle witnessed elongation to more than 60 days in FY2021, against less than 30 days in FY2017, the liquidity position of tower companies remains strong. The capital structure also remains healthy with limited external net debt, which coupled with healthy profitability translate into strong debt protection metrics, with interest coverage of around 5x and net debt (including leases) / OPBDITA of around 1.5x for FY2021.
ICRA expects the improvement in the operating metrics to sustain enabling it to restore the stable outlook on sector, with strengthening of the credit profile of telcos, as marked by scaling up of revenue and margin expansion. This will be supported by increase in ARPU levels and contribution from non-telco businesses, strengthening of balance sheet and liquidity position.
The Indian tower industry is set for exploring new revenues sources and opportunities of growth. Some of these can come from active infrastructure sharing, apart from partial monetisation of existing tower spaces as well as small cells, data centers, smart cities, etc.