Indus Towers Limited (INDUSTOWER) Earnings Call Transcript

Good afternoon, ladies and gentlemen. I'm Michelle, the moderator for this conference. Welcome to Indus Towers Limited Second Quarter Ended September 30, 2026 Earnings Call. [Operator Instructions] After the presentation, the question-and-answer session will be conducted for all participants on this call. [Operator Instructions] Present with us on the call today is the senior leadership team of Indus Towers. Before I hand over the call, I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risks that we face. I now hand the conference over to Mr. Prachur Sah. Thank you, and over to you, sir.

Thank you, Michelle, and a very warm welcome to everyone joining us today. I have Abhishek Maheshwari, our Chief Financial Officer; and Dheeraj Agarwal, our Head of Investor Relations on the call. Today, I will take you through our operational and financial performance for the quarter ended September 30, 2026. We are happy to share that we recorded a strong growth in co-location additions in Q2. This has translated into an improvement in our tenancy ratio from 1.62 to 1.63 following a period of stability. Growth during the quarter was driven by continued network expansion from our customers, alongside a pickup in rollouts by a major customer. With healthy order book visibility and accelerating rollout activity, we expect the growth momentum to continue. Importantly, we continue to be the preferred infrastructure partner for our key customers, capturing a substantial share of their incremental rollouts. Our extend footprint, superior network management capabilities, stringent SLA commitments and collaborative approach continue to reinforce customer trust and position us well to capture the next phase of industry growth. Our consistent performance and strong customer trust are underpinned by deep sense of ownership of our frontline teams. During the quarter, our teams across Northeast, the orange Jarkhand and UP East, once again demonstrated exceptional resilience in the face of severe floods that disrupted network operations restricted site access and cost to along our outages. Despite these challenges, our team responded with agility, proactive planning and close local coordination to accelerate restoration efforts and ensure service continuity across most of the affected networks. Their dedication in such challenging circumstances reflects the strength of our execution culture and our commitment to delivering reliable services to customers. The favorable regulatory environment has been supporting the seamless deployment of telecom infrastructure. Government support for smart meter deployment on telecom towers has further reinforced telecom infrastructure as a priority consumer category. Over the last 3 years, we have deployed smart meters on approximately 140,000 sites. This development provides improved visibility of consumption patterns and creates opportunities for energy optimization, operational efficiency and data-driven decision making. Coming to the 5G networks. According to the recent try data, India's 5G subscriber base grew by 36 million in the first quarter, exceeding 463 million subscribers. The secular demand curve is driving sustained operator investment in coverage and capacity. With the industry adding approximately 30,000 5G BTSs during the second quarter, taking the total installed base to around 593,000. As these networks mature, deployment focus is shifting towards network densification to support higher traffic loads and emerging digital use cases. Given our comprehensive portfolio and strength of customer relationships, we are structurally well positioned to support the steady infrastructure expansion. Infrastructure expansion and sustained 5G adoption trends are validated by robust consumption trends. In Q1, total data volume increased by 30% year-on-year, supported by an 18% rise in average monthly usage per subscriber. Notably, 5G networks are accelerating this trend. There with 5G usage alone growing 79% year-on-year, representing 44% of total data consumption, up from 32% in the prior year. This ongoing shift highlights the necessity for sustained investments in network capacity, which supports long-term utilization rates and tenancy growth on our passive shared infrastructure. Our operational performance witnessed strong order bookings led by sustained customer rollouts and increased network expansion by a major customer. We added approximately 2,900 macro towers and robust co-locations of 7,900, marking year-on-year growth of 5.6% in towers and 5.9% in co-locations. Our total macro tower and co-location base reached approximately 27,500 and 440,200 respectively. Our industry-leading tenancy ratio has also improved from 1.62% to 1.63%, driven by substantial rollout through sharing of our existing towers. Including leaner sites, we concluded the quarter with approximately 454,200 co-locations, reinforcing our market-leading operational scale. We remain committed to supporting our customers, network expansion through our shared portfolio. We are actively collaborating with one of our major customers to facilitate its planned network rollouts, which is reflected in our consistent performance. Given steady to deploy asset base, optimized geographical footprint and competitive value proposition, we remain confident in our ability to serve as a key long-term infrastructure partner for their network deployment plans. Our strategy of operating a low-cost shared infrastructure model provides the best solution to customers and index by the way of improving asset productivity. With a large portfolio of towers designed to support multiple tenants Indus remains the preferred partner for operators seeking rapid network expansion at an efficient cost. The company is equally well positioned to support existing customers in strategically important locations where finding alternative infrastructure options will be difficult or less economical, particularly for a second and a third tenant. As a result, we remain confident to expand and retain co-locations at [indiscernible] from all the major customers. In addition, we remain committed to serving our customers with best-in-class service delivery and upland lower operating costs through tenancy profile and lower unit energy costs compared to other providers which is critical for our customers' operations. Indus continues to create bespoke solutions that provide customers with options to offer connectivity in public infrastructure, such as airports, metros, tunnels, et cetera. During the quarter, Indus provided solutions for India Mobile Congress and enabled connectivity at Vizag airport and is actively participating in similar projects. Supported by a specialized team focused on design and execution the company has led incremental market share gains in new IBS deployments for 2 consecutive years and remains focused on expanding its presence in this segment while enhancing the end user connectivity experience. I would like to highlight that domination to deliver superior service delivery resulted in a sequential network improvement in our network of time from 99.95% to 99.97%. Despite challenging seasonal weather Continuous technology deployments have enhanced our real-time network visibility, driving superior diagnostic and preventive capabilities that keep our customers seamlessly connected. Let me now provide an update on our energy management measures and the progress we have made. Our energy margin performance was driven by an 11% year-on-year reduction in diesel consumption. Our efforts for enabling digital energy management our sites through remote connectivity, system-driven diesel planning, installation of fuel sensors and smart meters have started yielding positive results, while we believe there is still a long way to go. We optimize energy costs by deploying solar solutions across approximately 3,000 sites during Q2, increasing the solar site portfolio to 49,000 sites. Our planned transition from diesel to lithium ion battery storage is progressing well, and we are on track to meaningfully reduce dependence on diesel. Our ongoing digital transformation remains a key enabler for network reliability and operating efficiency. Deployment of AI native digital solutions is enhancing field productivity and analytics, implementation of AI-led image analytics is strengthening governance, vendor accountability and maintenance quality. Furthermore, offer digitalization through a combination of automated energy billing, digital twin capabilities and real-time dashboards is streamlining decision-making and reducing manual effort. These strategic initiatives are successfully transitioning Indus Towers towards the predictive data-driven operating model, continuously improving organizational efficiency and customer experience. Our commitment to sustainable growth to drive meaningful ESG and value chain outcomes. In environmental stewardship, we accelerated our decarbonization journey, expanding our renewable energy footprint to an installed solar capacity of 297 megawatts in Q2 from 259 megawatts in Q1. Safety remains a core priority. During the quarter, we launched Safety Shield awards to recognize exemplary safety performance across our teams and partners, further strengthening our culture of safety and accountability. Through our flagship CSR initiative, Sam and Pragati, we positively impacted over 11 million lives this quarter while actively supporting communities affected by natural disasters and humanitarian challenges in a fun Aratadesh and UP. Our ESG assessments and capability-building initiatives continue to strengthen a more resilient value chain during the quarter. maturity assessments across 70 partners resulted in an 8% improvement in average AAG maturity scores. We are pleased to report that our CRISIL ESG rating improved from 57 to 63 complemented by recognition at Martha Awards and Business World Sustainable World Awards. Together, these milestones underscore our focus on creating long-term value through responsible and resilient operations. Coming to Africa, our Africa foray is gaining strong traction proving the competitiveness and the cost leadership of Indus operating model. By achieving considerable CapEx savings per tower compared to competitors, we are delivering lower cost solutions for our anchor customer. Rollouts have successfully commenced with initial tower deployments as planned are scheduled to ramp up -- we have also initiated engagements beyond our ankle customer to leverage our tenancy led business model. Africa expansion is a long-term strategy, and we strongly believe we have a right to win. I would now request Abhishek to take you through our financial performance, and I look forward to your questions. Thank you, and over to you, Abhishek.

Thank you, Prachur. Good afternoon, everyone. I'm pleased to present our financial results for the quarter ended September 30, 2026. We witnessed a strong addition of co-location during the quarter on the back of continued network expansion by our customers. The operation momentum has supported steady revenue growth and robust cash generation, reinforcing the strength of our inflator selling model. talking about financial performance for quarter 2. Revenue for the company grew by 1% quarter-on-quarter and the revenue absolute value stands at INR 85.2 billion Core revenue for the rental is up by 1.3% quarter-on-quarter stands at INR 54.5 billion, driven by steady co-location addition and asset loading. This was further supported by accelerating of network rollout by major customers during the quarter. On year-on-year performance of our reported revenue and core revenue grew by 4% and 3.9%, respectively. Moving on profitability. Reported EBITDA increased by 2.5% quarter-on-quarter and stands at INR 46.3 billion for the quarter. Our EBITDA margin also improved by 80 basis points quarter-on-quarter and stands at 54.4% for the quarter. Please note that quarter 2 of last fiscal year included write-backs of approximately INR 2 billion relating to collection of overdue receivables from a major customer. PAUSE adjusting this to one-off, our EBITDA grew at 5.2% Y-o-Y. Our energy margin was negative 3.6% in quarter 2 compared to negative of 4.6% in quarter 1 and 4.8% in the corresponding quarter of last year, reflecting a significant improvement during the reported quarter. our structured energy efficiency major are yielding positive results, and digital consumption is further reduced by 11% year-on-year. Our continued focus on technology-led energy management, including digital optimization, enhanced visibility into electricity consumption and adoption of advanced battery solution is lowering energy cost while strengthening our competitive position and energy performance. Profit after tax was up by 2.7% quarter-on-quarter and stands at INR 17.9 billion. driven by significant growth in EBITDA. Adjusting to the earlier mentioned write-back, PAT for the company grew at 6.4% Y-o-Y. Our capital productivity remains very efficient. From the trailing 12 months, we delivered a pretax return on capital employed of 25.3% and post-tax return on equity of 9.2%. The capital efficiency is reflected in our cash generation with the free cash flow remaining robust at INR 14 billion for the quarter. The liquidity profile provides us with financial flexibility to support sustainable value-accretive capital expenditure. Turning on Africa. We have successfully deployed tower in Zambia and Uganda in quarter 2 and also started generating revenue. In line with our phased rollout plan, we are set to begin deployment in Nigeria during the current quarter and our early CapEx performance per tower remain within the plant, evaluating our cost model during the initial phases. As the portfolio recast to a more representative scale, we intend to share more detail on operational and financial metrics in subsequent quarters by leveraging our discipline and cost-efficient shared instore model and robust network management, we are confident in our ability to become a credible player and actively support Africa long-term digital infraucture demand. To conclude, our quarter 2 performance underscored PAUSE the resilience of our business model, underpinned by healthy order book and sustained customer rollout. Looking ahead, our focus on operating efficiency, structure, energy cost optimization and technology integration will continue to support profitability. Further, our expansion into Africa progresses on schedule, representing a mixed extension of our core competencies. We remain committed to executing profitable growth opportunity and driving sustainable long-term value for shareholders. With that, now I hand it back to Michelle to open the floor for questions.

[Operator Instructions] The first question is from the line of Sachin Salgar from Bank of America.

I have first question. Question number one, I wanted to understand the mix of a tenancy growth. Now presure in your opening remarks, you did mention that there is a good amount of 5G tenancy, which is coming. And there's also mentioned about 1 customer who has incrementally started to roll out. So I was trying to understand the mix going ahead. How should we think about 5G growth versus growth coming from this customer, which may not necessarily be all 5G tenancies?

Yes. Sachin, I can just clarify. So maybe reference only 5G network for India. So whenever we talk about towers and tenancies, I'm not referring to 5G or 4G, it is actually a tower in -- for us. It may be a 4-year 5G. So 5G is actually eventually loading on the same tower. So I think the question that you're trying to ask is the mix of tower and tenancy. So actually, this quarter, we added 2,900 towers and 1,700 tenancies, which is basically a second tenant on an existing site when we talk about the tenancy. So I think the -- the mix will depend on the order book, as we said. And as I said, the major customer -- the second customer on our side is rolling out is doing its network expansion. So I believe the ratio of tenancy would continue to be considerably meaningful. And what will be the ratio between towers and tenancies that is to be seen on the quarter PAUSE quarter-to-quarter basis, but I believe that ratio will remain quite healthy given the nature of expansion given the fact that we have a large 1 tower base that is available for a second turning to come.

Got it. Second question, just wanted to understand 1 of your towers agreement has expired. Did we hear back in terms of any incremental update and one of your other customers, basis public info is looking to raise some money, particularly debt from banks. looks like we don't have any incremental update on that. So I'm trying to understand the kind of the business what you will get. So irrespective of whether this entity raises debt or not, how should 1 think about the incremental business coming to you guys?

So Sachin, I think I will not speculate on behalf of the customer. But what I can tell you, as I mentioned in my commentary as well. I think we do have a visibility of a strong order book. And I think we will keep executing basis that order book. So you'll continue to see our delivery in the line with what the orders we have. I think -- so I think that's where I would say our visibility is. So I think Q3 and for the coming quarters, we do see that we have a strong order book from the major customers that we have. As far as the tenancy renewal is concerned, I think it's -- and we have discussed this earlier as well. I think as of now, we continue to operate the tenancy portfolio with all our customers. And our objective remains to provide them the leading services so that there is no -- and we continue to provide them as a third tenant as a third tenant as well. So I think from a cost efficiency and service delivery point of view, we remain very competitive and compared to much better lower operating costs than a single tenant rupee. However, that is something that is in discussion and I don't have any incremental updates to share on that aspect.

Got it. And last question, I wanted to have an update on Africa. Any numbers you could share in terms of number of towers deployed. What is the target? And what kind of CapEx should we expect, let's say, by the end of this fiscal year?

So such in Africa, as Abhishek mentioned in his commentary, I think late part of Q2 is when we have started seeing the towers being rolled out and come in service. So in the subsequent quarters, you will see us putting out the meaningful metrics out there for you to see. But as of now, it is not at scale. So we will just wait for the subsequent quarters to start giving you more flavor on the exact numbers that have been rolled out.

Got it. And is it fair to say that Airtel is currently the only anchor customer. I understand you are in touch with some of the other customers. But have you signed any agreements with any of the other telcos in that market?

No, I think it remains our primary anchor customer in Africa.

The next question is from the line of Kunal Vora from BNP Pariba.

Yes. So the first one is the rental revenue growth has been around 4%, 5% in recent quarters, and that's despite additions, loading, rental explanation, et cetera. Do you see this accelerating? And what will drive this? This is for India only North Africa?

I think the revenue growth is always driven by our tower and tenancy growth. And of course, we have certain aspects of loading and the other escalations, which are muted by the renewal impact. So I think the growth will remain I mentioned earlier, to Sachin as well, there is a strong order book. So I think as we keep deploying towers and tenancies according to the order book, the growth will be commensurate to that. I mean, unless you would add something else is.

Yes. I think, Kunal, I think only incremental point to add, which is worth noting that last year, quarter 2 in the same fiscal year, we had reported a one-off benefit of around 0.8% on the overall revenue. That is also impacting the Y-o-Y performance for this quarter.

Understood. But even with strong, let's say, strong co-lo additions, this is the revenue growth, which we are looking at -- are you seeing an acceleration in the coming quarters? Any triggers for that? Or this is where it will remain.

Kunal, I think see, sometimes, I mean, I will not grow our exact correlation, but what I can tell you is sometimes the co-location additions for a quarter see the full quarter of revenue. So I think the full quarter revenue comes in the subsequent quarter. So I think there is always a timing mismatch. And if there is a one-off impact in the previous quarter, it also has an impact. So I would say I don't think the it's fair to comment that is going to be at the same rate or higher rate. I think it depends on a couple of factors. And as you see the full quarter impact of the revenue, I think we will see the real meaningful impact. So there is always an overflow of the revenue, which -- for which the tenancy were deployed in this quarter.

Understood. Second one, your power and fuel expenses have increased by only 3% year-on-year. which is lower versus tower growth of 6%, implying that energy cost per tower is down at a time when there is high energy inflation. I heard that diesel consumption is reduced by. Can you help us understand the energy usage mix? So what is driving this deflation? And if this is structural due to renewable energy investment? Or so if there is any change in thought process regarding energy margins?

Yes. So I think, Kunal, the 11% diesel reduction and the cost reduction I think it is primarily driven by the operational initiatives that we have taken. I think there has been a substantial work on the solar. As you saw in my slide, we have already deployed by end of September, close to 49,000 solar sites. Secondly, there's a lot of work that is currently ongoing in terms of how we manage our operations through infusion of digital and AI in our planning of fuel operations. Thirdly, I think over the last few years, as we have started to transition from traditional lead acid batteries to lithium-ion batteries, it is also starting to contribute because now it has reached a scale where it can start making a meaningful impact on the cost reduction. So I would say these are structural cost initiatives that have been taken that are making an impact. Of course, at the scale we are for room to go. So I think I will focus more on the cost initiatives and less discussion about the margin because there are certain other factors that impact the margin. But from a cost perspective, we remain very confident that these initiatives that we are taking are they are long term and sustainable to make a meaningful impact on a cost per unit that we take for energy from our customers.

But the cost does not have any implications on margins, is it?

I think there is, of course, there is. I think revenue and costs both have an impact on the margin, but it also depends on seasonality, it depends on what kind of efficiency we are operating at. But I'm saying is the initiatives that we are trying to take is to make sure that the cost and the efficiency improves, and that will eventually show up in the margin. We saw some impact on the margin already this quarter. There is a meaningful impact about close to 1% compared to last year quarter 2 because that is the right comparison to make. But as I said, there is still more to be done. And there are certain other elements that can further make the margin better worse..

Understood. Just one last question. Can you talk about how inflation and currency depreciation are impacting your OpEx and CapEx? And is there a way you can pass on the additional burden to the customers if the high inflation persists also I wanted to understand that this -- as in the past, you've not really seen the 2.5% annual rental escalation coming through. So how inflation and currency depreciation will impact.

See, I think there are 2 parts to that question. I think first is the escalation that we have that takes care of the inflation impact when it comes to OpEx. As far as CapEx is concerned, based on our MSA, whichever rates are to be revised on CapEx wherever we have that flexibility, that is accordingly adjusted for the customers. But by the way, the escalation is also on the standard rate of the cover. So the escalation does cover majority of the inflation that is coming through.

Point was that like right now, we are seeing very high inflation, but like escalation still remains where it is. I mean, you don't have any additional pass additional

Kunal, I think we have to look at a little bit longer term. I think no customer will just give you the inflation at the time of increase and not at the time of. So I think we have to look at a little bit of a longer horizon and how that escalation helps us managing the inflation over a longer period.

The next question is from the line of Bineet Banka from Nomura.

I have a question on the CapEx. So if you look at gross FX it increased on a Q-on-Q basis, whereas your new tower addition decline? And if I just divide the growth CapEx by the number of towers added in this quarter, the number comes from INR 67 lakhs. And the guidance for new tower CapEx is around 20, 25 lakhs. So what is causing this a different PAUSE.

Yes. Let me take this question. Vinit, thank you for the question. I think if you -- the answer lies in this IP, if you follow our balance sheet, there is an increase of around INR 250-odd crores on the vet value quarter-on-quarter, which is a reflection of what Secure was diluting on the very healthy order book what we have. We continue to run our power in the subsequent quarter. Further to this, I think if you look at the profile of growth in operational CapEx it's not very different in quarter 2 versus what we had in quarter 1. It is broadly in the same ratio.

Whenever we -- in addition, whenever we do the additional tenancies as well, they also come -- whenever we do a tenancy or upgrade of a 5G or install solar all these are also the components of CapEx that impact growth, but it is not reflected by the growth from the tower count per se. So I think the division of the overall growth CapEx just divided by tower count may not be the way to look at the cost per tower situation.

But sir, this same number is going up every quarter. So just trying to understand if the gross addition of tower was much higher than the net addition that we see in the reported numbers.

Maybe, again, I think it's not just -- as I said, it is not just a function of tower. It is always a function of what kind of towers as well are being put, right? Whether if it's a rural tower urban tower how many 5G upgrades have been done? How many loading have been done? How many sharing sites. When we added tenancy as well, it comes at an upgrade cost. It's not a 0 CapEx solution. So I think the growth CapEx is not just 1 component, right? There are multiple components that make up