ICRA: Telecom Tower Industry heading Towards Steady Tenancy Additions

ICRA said in a note on Wednesday that the headwinds faced by the telecom tower industry have largely subsided. It also said that the industry is now heading towards a regime of steady addition in tenancy levels. Further, ICRA also said that working capital cycle is also stabilizing for tower companies. ICRA added that improving operating metrics of telcos show signs of recovery for tower companies.

Telecom Tower Industry on the Up - ICRA

Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA Ltd, said that stabilization in the telecom services industry has consequently brought stability to the tower industry by arresting tenancy exits. He also added that demand has seen significant growth in telecom. That demand has led to telcos regularly expanding and improving their network, Majumdar said.

He added that the same will keep the tower companies' demand at a healthy level. 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".

Further, Majumdar said, "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".

The ICRA note also said the receivable cycle also increased to more than 60 days in FY 2021. Notably, this was less than 30 days in 2017.

Healthy Financials Reflected by Tower Companies

Majumdar said that the capital structure "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 FY 2021".

ICRA pointed out that the telcos have seen a constant improvement in their performance. Subscribers moving to 4G from 2G and increased data demand that comes with it has driven the improvement, ICRA said. That has improved telcos' ARPU levels despite a setback in Q4FY2021 because telcos stopped charging IUC from its users.

ICRA has also improved the sector outlook to ‘Stable’ from ‘Negative’. This move comes after the sector got some relief from issues such as AGR penalty.

Majumdar said, "...The tower industry is set for a journey towards exploring new revenue sources and opportunities for 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. The business plans and extent of revenue and return generation from these would remain a key monitorable".