INDUSTOWER — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Mr. N Kumar · Chairman and Independent Director - Indus Towers Limited

Transcript of Indus Towers Limited Third Quarter Ended December

CORPORATE CALL PARTICIPANTS · Mr. Kunal Vora

Mr. Kunal Vora

BNP Paribas, Mumbai · Mr. Sanjesh Jain

Mr. Sanjesh Jain

ICICI Securities, Mumbai · Mr. Mitul Shah

Mr. Mitul Shah

Reliance Securities, Mumbai · Mr. Siddharth Gupta

Mr. Siddharth Gupta

Voyager Capital, Mumbai · Mr. Sachin Salgaonkar

Mr. Sachin Salgaonkar

BofA Securities, Mumbai · Mr. Giriraj Daga

Mr. Giriraj Daga K M Visaria Family Trust, Mumbai Mr. Arun Prasath

Spark Capital, Chennai · PRESENTATION

PRESENTATION

Vandana – Moderator · Good afternoon, ladies and gentlemen, I am Vandana, the moderator for this conference. Welcome to the Indus Towers Limited

Good afternoon, ladies and gentlemen, I am Vandana, the moderator for this conference.

Welcome to the Indus Towers Limited Third Quarter ended December 31, 2022 Earnings Call.

For the duration of the presentation, all participant lines will be in the listen- only mode.

After the presentation, the question-and-answer session will be conducted for all the participants on this call.

In case of a natural disaster, the conference call will be culminated post an announcement.

Present with us on the call today are the Chairman and Independent Director of Indus Towers Mr. N Kumar, along with the senior leadership team of Indus Towers, Mr. Prachur Sah, MD and CEO; Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; and Mr. Dheeraj Agarwal, Head Investor Relations.

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 over the call to our first speaker of the day, Mr. N Kumar.

Thank you, and over to you, Mr. Kumar.

N Kumar — Chairman and Independent Director – Indus Towers Limited Thank you, Vandana, and good afternoon, everyone.

A warm welcome to all of you today afternoon.

Thank you for joining us on the earnings call of Indus Towers for the quarter ended December 31, 2022.

Thank you very much, Mr. Jain.

The next question comes from Mr. Arun Prasath from Spark Capital, Chennai.

Mr. Prasath, you may ask your question now.

Arun Prasath — Spark Capital — Chennai Thank you.

Thanks for taking my questions.

My first question is on the receivables.

I think since this receivable issue started in the early part of the last year, we kind of said that post December 2022, operator has agreed to increase his payout.

But now it seems like all the hopes are based on their ability to raise the funds.

So my question is, if they are not able to raise the funds, what are the options we will have at our disposal to collect the regular invoice amount plus the pending amount?

That is my question number one.

Prachur Sah — Managing Director and Chief Executive Officer – Indus Towers Limited Arun, thanks for the question.

I think the situation is a little bit dynamic.

So we are working with them to understand the funding situation and our actions will be based on what we receive.

So, as Vikas mentioned, we have done a derisking of the balance sheet in the interest of the company’s shareholders, and we will continue to look at the situation on how the payments come and we will make calls accordingly.

Thank you very much, Mr. Prasath.

The next question comes from Mr. Mitul Shah from Reliance Securities, Mumbai.

Mr. Shah, you may ask your question now.

Mitul Shah — Reliance Securities — Mumbai Thank you for giving me the opportunity.

Sir, first question is on this exceptional item of Rs.4.9 billion.

Sir, can you give some details on this?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited Yes.

So, as per the Indian Accounting Standard 116, which is on the lease accounting, basically the long-term revenue contracts have to be recognized on a straight-line basis over the contractual period and accordingly, there is a revenue equalization asset that gets created.

Now, in the case of this particular customer because there is a challenge that is clearly visible to us, it is very uncertain that those long-term contractual revenues will be collected, so there’s that element of uncertainty because of which we have impaired that revenue equalization asset pertaining to this customer, and that amounts to Rs.4.9 billion on our balance sheet, which we have impaired.

So that is the exceptional item that we have disclosed in this quarter.

Mitul Shah — Reliance Securities — Mumbai Any visibility over near-term in terms of similar amount or similar item could be repeated in coming quarters, or it is almost done?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited So specific to this customer we have impaired the entire revenue equalization asset.

Along with that, we have also stopped recognizing the revenue equalization-related revenue in this quarter, which is the Rs.0.7 billion I spoke about, and to that extent, obviously, we will follow a very consistent practice going forward.

Mitul Shah — Reliance Securities — Mumbai Okay.

Sir, second question is on provisioning- the Rs.22 billion-plus provision.

Do you see now it is more or less done and the quantum could be much lower in coming quarters?

Or still there is uncertainty on that side?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited Again, that is a bit forward-looking, Mitul.

So I would only say that, we have basically derisked our balance sheet to a large extent recognizing the uncertainty as far as the collections are concerned.

Clearly, the higher payment plan that I was talking about in previous quarter, is dependent on the funding which has not materialized yet.

So there is a higher uncertainty that we are facing.

So accordingly, we have derisked the balance sheet by providing the Rs.23 billion roughly on account of the customer, which takes care of a large outstanding sitting on our balance sheet.

Going forward there might be more provisions, but it is difficult to quantify at this stage, because like Prachur said, it is a dynamic situation, and a lot will depend on how the payments are received or the collections happen going forward.

So, we will see how it goes.

Mitul Shah — Reliance Securities — Mumbai Sir, in terms of revenue breakup, can you give approximate number, this customer’s contribution currently?

Thank you very much, Mr. Shah.

The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai.

Mr. Vora, you may ask your question now.

Kunal Vora — BNP Paribas — Mumbai Thanks for the opportunity.

My first question is on the receivables.

So is it fair to assume that most of the old receivables are now provided and the receivables which you have now are mostly for the current quarter?

And also, this quarter, the receivables increased by about Rs.8 billion excluding the provisions.

Going forward, is that a trend which you can look at?

And what is the payment understanding you have now from the customer from whom you are not receiving payments?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited Yes.

Thanks, Kunal.

So, I think a substantial part has been derisked with this provision that we have created in this quarter, and as far as the payment understanding is concerned, like we said earlier, the discussions are ongoing.

We have not received any sort of new payment plan or a revised payment plan.

So pretty much, we are still hoping for the current payment plan to sort of guide us as far as the future is concerned.

So we are in discussions and if there is any update, eventually we will let you know.

But right now there is no revised payment plan that we have.

Kunal Vora — BNP Paribas — Mumbai Sir, just to understand, like October to December whatever billing you have done, what proportion of that you would have collected?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited

Thank you very much, Mr. Vora.

The next question comes from Mr. Siddharth Gupta from Voyager Capital, Mumbai.

Mr. Gupta, you may ask your question now.

Thank you very much, Mr. Gupta.

The next question comes from Mr. Sachin Salgaonkar from BofA, Mumbai.

Mr. Salgaonkar, you may ask your question now.

Sachin Salgaonkar — Bofa Securities — Mumbai Hi.

Thank you for the opportunity.

Couple of questions.

I think in your press release you guys indicated that there are challenges with one of the operators to comply with your higher payment plan in the future.

So the question now here is, if one operator can’t pay higher payments, then what incentives do other operators have to comply to that higher payment?

Because anyways you guys are not taking any significant action against that operator, right?

You are not shutting down their towers, you guys have no secured amounts from that.

So, I mean, at some level other customers of yours are forced to pay slightly higher, which, one of the operators is not doing.

So how do you resolve this issue between all three operators?

Thank you.

The next question comes from Mr. Giriraj Daga from K M Visaria Family Trust, Mumbai.

Mr. Daga, you may ask your question now.

Giriraj Daga — K M Visaria Family Trust — Mumbai Yes.

Hello sir.

Again, in the same point on the receivable side of it, just to get some broad things right.

As from my understanding, the receivables total outstanding, including the gross up will be closer to Rs.80 billion, 85 billion, and the numbers look scary, because that is the last year PBT also, when I look at last year FY2022 PBT that was Rs.85 billion.

So, the point is that, will we continue to make the new receivables which will look outstanding because everybody is asking the same question?

How far we will continue to go?

In terms of priority ranking we understand you have already given that in terms of unsecured receivables has not been the priority.

So is the Board aware about that?

Secondly, when we look at it like this, it looks like we are compromising the share of the minority interest shareholder.

So that way like, is Board is taking any action?

Or will we continue to make new receivables?

Vikas Poddar — Chief Financial Officer – Indus Towers Limited So, Giriraj, I think we will be belaboring this point a bit.

Clearly first of all, the receivables figure that you are computing on a gross basis, I presume that is all customers.

So yes, we have a receivables issue, and I can only assure you that we are not compromising.

We are working in the best interest of the shareholders.

There are various options, and we are basically evaluating those options to ensure that we do not do something which will have a long-term erosion.

So, the Board is fully involved, the senior management is fully involved, and rest assured that we will take the right action.

Now, simply taking an operating action and as you are envisaging, reducing services, or shutting down services, well, there are those options.

But that may not be in the best interest.

So, we are evaluating, and we will take the right action when the time comes.

Giriraj Daga — K M Visaria Family Trust — Mumbai Lastly, any kind of cut-off date?

Prachur Sah — Managing Director and Chief Executive Officer – Indus Towers Limited To be honest, it all depends on how the payment plan pans out.

This is a discussion, and we will keep you updated.

I think it all depends on how the payment pans out and the fundraising visibility we get.

So, I think based on that, we will take the action.

Giriraj Daga — K M Visaria Family Trust — Mumbai Okay.

Thank you.

Thank you very much, Mr. Daga.

Due to time constraint, I would like to hand over the call proceedings to Mr. Prachur Sah for the final remarks.

Prachur Sah — Managing Director and Chief Executive Officer – Indus Towers Limited

Ladies and gentlemen, this concludes the conference call.

You may now disconnect your lines.

Thank you for connecting to audio conference service from Airtel and have a pleasant evening.

Questions and answers

Vandana – Moderator · Good afternoon, ladies and gentlemen, I am Vandana, the moderator for this conference. Welcome to the Indus Towers Limited

Thank you very much, sir.

We will now begin the question-and-answer interactive session for all the participants who are connected to the audio conference service from Airtel.

Due to time constraint, we will request if you could limit the number of questions to two to enable more participation.

Hence management will take only two questions per participant to ensure maximum participation.

Participants who wish to ask questions may please press “*” “1” on their touchtone enable telephone keypad.

By pressing “*” “1” participant will get a chance to present their question on a first in line basis.

To ask a question participant may please press “*” “1” now.

The first question comes from Mr. Sanjesh Jain from ICICI Securities, Mumbai.

Mr. Jain, you may ask your question now.

Sanjesh Jain — ICICI Securities — Mumbai Yes, good afternoon.

Thanks for taking my questions.

I got a couple of them.

First on the 5G loading opportunity.

I just wanted to understand purely from the ability to load the 5G equipment on the existing towers.

Do we have enough provision for an operator to come and load 5G and if possible, on how many bands can they rollout simultaneously?

Or do you think there will be a situation where the operator has to shift to a fresh tenancy for loading this 5G site?

How is the situation on the space availability on the tower purely from the 5G rollout perspective?

That is number one.

Follow-up on the 5G.

In the opening remarks, we did mention that the weekly run rate of 5G site addition is 5,000 per week.

We have already done 50,000 of it.

At our weekly run rate of 5,000 by next 12 months, we will be rolling out close to 250,000 BTS, which is more than the tower.

So when we say BTS, what does it mean at this speed you anticipate a complete 5G loading on the existing towers?

How should we see the rollout plans and what are you seeing on the rollout side by the operator?

So these are my first two questions.

Tejinder Kalra — Chief Operating Officer – Indus Tower Limited Yes.

Thanks for the question, Sanjesh.

First to answer on, whether do we have enough capacities, space and the loading capacity on the existing towers.

The answer is most of the towers, yes.

So far, whatever rollouts we have done, we have not faced any challenge, where we had to refuse a loading of 5G on any of the existing towers.

What typically goes on the tower is the radio and some antenna, in some cases, especially in the areas where, in one of the operator’s case, for example, where 700 MHz spectrum for 5G is being rolled out.

So some sites, they have to either put up antennas, otherwise, they may have multi-band antennas and therefore, no antennas required there as well.

So limitation in terms of space and capacity on the towers is not an issue.

Today, 5G is allowed only in 700 MHz and 3.5 GHz band.

Should the operator need to refarm the existing frequencies into 5G, those radios are already up on the towers.

So they are not going to come in as additional loading on the towers, but it is just a frequency switch from, let us say, 4G to 5G or 2G to 4G or whatever.

So limitation none when it comes to the loading capacity on the towers.

I think we are good with that, and I do not think the operator would need to go to an additional site for rolling out their 5G requirement there.

Your second question was on the 5G BTSs, and 5,000 run rate and the total number of towers they have and so on.

In case of one of the operators who is rolling a stand-alone 5G network because they are rolling out in 700 MHz and 3.5 GHz, there is one radio per frequency, and therefore, two for that operator on a particular site.

The other operator is only rolling out in the 3.5 GHz, so therefore one radio.

The BTS which we refer to is the frequency-specific radio on a site.

So if there are two frequencies of one operator and one of another operator on the same site, then there are three BTSs going on the same site.

So therefore, the count which you are calculating in terms of number of towers and so on, I think that is the way to look at it.

Sanjesh Jain — ICICI Securities — Mumbai Fair enough.

Now I got a fair idea.

Second on the opportunity to further expand the tower footprint and considering that initially 5G will largely come in loading and considering that one operator is using 1800 MHz as an uplink and other operator 700 MHz as an uplink which put me to a thought that we may not see a tower upside from the 5G rollout, it can largely get restricted from a tower company perspective just being a loading opportunity from the 5G.

Just wanted to get your thought around the opportunities in the 5G, will it be limited as a loading for us as a tower company?

That is number one.

Number two, considering that the capacity creation is happening on the 5G, is it fair to understand that the 4G rollout may see a material slowdown and hence a lot of tenancy slowdown we saw in this quarter is a resultant of that?