Indus Towers Ltd:Annual Report 2023-24 Analysis

Indus Towers Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Indus Towers was formed in November 2007 as a result of the merger between Bharti Infratel, Vodafone Essar Infrastructure, and Idea Cellular Infrastructure Services. This brought together the tower portfolios of three major telecom operators in India.

Headquarters Location and Global Presence: The headquarters of Indus Towers is located in Gurugram, Haryana, India. While its primary focus is on the Indian market, it is the largest telecom tower company in the world outside China, based on tower ownership.

Company Vision and Mission: While a publicly stated vision and mission statement may evolve, Indus Towers’ core focus is typically centered around:

• Vision: To be the leading and most respected telecom infrastructure provider, enabling seamless connectivity for a digital India.
• Mission: To provide reliable, efficient, and sustainable telecom infrastructure solutions to mobile operators, facilitating their network expansion and improving connectivity across India.

Key Milestones in Their Growth Journey:

• 2007: Formation of Indus Towers through a merger.
• Subsequent years: Rapid expansion of tower portfolio through organic growth and acquisitions.
• Strategic partnerships: Collaborations with telecom operators to deploy advanced technologies and expand network coverage.
• Focus on energy efficiency: Implementation of green initiatives to reduce carbon footprint.
• Merger with Bharti Infratel (Completed in 2022): Solidified Indus Towers’ position as the largest tower company in India.

Stock Exchange Listing Details and Market Capitalization: Indus Towers is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of late 2023, their market capitalization is a significant figure reflecting their leading position in the Indian telecom infrastructure market, but specific figures fluctuate daily.

Recent Financial Performance Highlights: Recent financial performance data should be pulled directly from the most recent annual reports, quarterly reports, and investor presentations available on the Indus Towers website or financial news sources. Key metrics include:

• Revenue
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
• Net Profit
• Capital Expenditure (CAPEX)
• Debt levels
• Tower utilization rates
• Share price performance

Management Team and Leadership Structure: Typically consists of:

• Board of Directors: Oversees the company’s strategy and governance.
• Managing Director/CEO: Responsible for the overall management and performance of the company.
• Chief Financial Officer (CFO): Manages the financial operations.
• Chief Operating Officer (COO): Oversees the operational aspects of the business.
• Heads of various departments: Such as technology, sales, marketing, human resources, etc.

Any Notable Awards or Recognitions: Awards and recognitions change over time. Look for recent announcements related to sustainability, innovation, corporate governance, and operational excellence.

Their Products #

Complete Product Portfolio with Categories:

• Telecom Towers: Ground-based towers, rooftop towers, and smart city infrastructure.
• Power Solutions: DG sets, battery banks, and renewable energy solutions (solar, wind).
• Energy Management: Solutions to optimize power consumption and reduce carbon footprint.
• In-Building Solutions (IBS): Providing connectivity in indoor environments.
• Small Cells: Deploying small cells to enhance network capacity and coverage.
• Fiber Solutions: Providing fiber connectivity for backhaul and fronthaul networks.

Key Technological Innovations or Patents:

• Green Technologies: Focus on using renewable energy sources to power telecom towers.
• Smart Tower Solutions: Remote monitoring and management of towers using IoT technology.
• Energy Efficiency: Innovations in power management to reduce energy consumption.

Quality Certifications and Standards: Indus Towers maintains various quality certifications, like ISO 9001 (Quality Management System), ISO 14001 (Environmental Management System), and OHSAS 18001 (Occupational Health and Safety Assessment Series), to ensure compliance with industry standards.

Any Unique Selling Propositions or Technological Advantages:

• Scale: Largest tower company in India, offering extensive network coverage.
• Experience: Proven track record in managing and operating telecom towers.
• Technological Expertise: Focus on innovative solutions to improve network efficiency and reduce costs.
• Sustainability: Commitment to green initiatives and reducing carbon footprint.

Recent Product Launches or R&D Initiatives: Focus on:

• 5G Infrastructure: Deployment of towers and solutions to support 5G network rollouts.
• Smart City Solutions: Providing infrastructure for smart city projects, including small cells and fiber connectivity.
• Edge Computing: Enabling edge computing capabilities at tower sites.

Primary Customers #

Target Industries and Sectors:

• Telecom Operators: Vodafone Idea, Bharti Airtel, Reliance Jio, and other mobile network operators (MNOs).

Geographic Markets (domestic vs. international): Indus Towers primarily operates in the Indian market.

Any Notable Government Contracts or Institutional Clients: They work closely with government agencies and municipalities for infrastructure development projects, including smart city initiatives.

Major Competitors #

Direct Competitors in India:

• American Tower Corporation (ATC) India
• Summit Digitel Infrastructure

Comparative Market Share Analysis: Indus Towers holds the leading market share in the Indian telecom tower industry. Market share data fluctuates and should be obtained from industry reports.

Competitive Advantages and Disadvantages:

• Advantages: Scale, experience, extensive network coverage, focus on innovation.
• Disadvantages: Dependence on telecom operators, exposure to regulatory changes, potential for technology disruption.

How they differentiate from competitors: Focus on:

• Scale and coverage: Largest tower portfolio in India.
• Technological innovation: Deployment of advanced technologies.
• Sustainability: Commitment to green initiatives.

Future Outlook #

Expansion Plans or Growth Strategy:

• 5G Network Expansion: Supporting the rollout of 5G networks across India.
• Smart City Projects: Providing infrastructure for smart city initiatives.
• Expansion of In-Building Solutions: Enhancing connectivity in indoor environments.
• Focus on emerging technologies: Such as IoT and edge computing.

Sustainability Initiatives or ESG Commitments:

• Renewable Energy Adoption: Increasing the use of renewable energy sources to power telecom towers.
• Carbon Footprint Reduction: Implementing measures to reduce carbon emissions.
• Responsible Business Practices: Adhering to ethical and sustainable business practices.

Industry Trends Affecting Their Business:

• 5G Deployment: The rollout of 5G networks is driving demand for telecom infrastructure.
• Data Growth: Increasing data consumption is requiring operators to expand network capacity.
• Smart Cities: The development of smart cities is creating opportunities for infrastructure providers.
• Energy Efficiency: Growing focus on energy efficiency and sustainability.

Long-term Vision and Strategic Goals:

• To maintain its leadership position in the Indian telecom tower industry.
• To support the growth of the digital economy in India.
• To create value for its stakeholders through sustainable and responsible business practices.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: FY24 revenue from operations increased by 0.8% year-over-year to I 286,006 Mn, compared with a 2.3% increase in FY23.
• EBITDA: FY24 EBITDA increased by 50.4% year-over-year to I 146,939 Mn, with an EBITDA margin of 51.4%, compared to 34.4% in FY23.
• Profit After Tax (PAT): FY24 PAT nearly tripled year-over-year, reaching I 60,362 Mn, a 196% increase, with a PAT margin of 21.1%, compared to 7.2% in FY23.
• Capex: FY24 capital expenditure significantly increased by 135% year-over-year, totaling I 96,975 Mn.
• Operating Free Cash Flow: FY24 witnessed a decline, reaching I 18,230 Mn, compared to I 26,182 Mn in FY23.
• Net Debt to Equity Ratio: Decreased to 0.16 in FY24 from 0.22 in FY23.
• Return on Capital Employed (ROCE): FY24 ROCE was 19.4%, compared to 11.0% in FY23.
• Total Towers (Nos): Increased from 192,874 in FY23 to 219,736 in FY24.
• Total Colocations (Nos): increased from 342,831 in FY23 to 368,588 in FY24.
• Average Sharing Factor (Times): decreased from 1.79 in FY23 to 1.72 in FY24.
• Closing Sharing Factor: Decreased from 1.78 in FY23 to 1.68 in FY24.

Business Segment Performance #

• Indus Towers operates as a single reportable segment: providing passive telecom infrastructure services.
• Key performance drivers include tower and co-location additions, and 5G loading on towers.

Major Strategic Initiatives and Their Progress #

• Market Share Increase: Achieved record tower additions in FY24, with tower count exceeding 200,000, through dedicated teams, digital interventions, and a strengthened partner ecosystem.
• Cost Efficiency: Achieved 8% reduction in diesel consumption from FY23. Opex productivity improved by 16%. Accelerated renewable energy adoption, with over 14,000 solar sites added during the year.
• Network Uptime: Achieved an industry-high network uptime of 99.965% through real-time monitoring and proactive maintenance.
• Sustainability: Launched the ‘Zero Goal Hai’ campaign, targeting zero emissions, zero harm, zero waste, zero bias, and zero tolerance for non-compliance. Significant progress in solar site additions and diesel consumption reduction.
• 5G Deployment: Deployed over 72,000 5G sites during FY24, in line with customers’ network expansion plans.

Risk Landscape Changes #

• Financial Health of Key Customers: Remains a concern, though collections from a major customer have improved.
• Statutory Compliances, Regulations, and Reforms: Ongoing monitoring of changes in tax, regulatory, and statutory landscape.
• Data Security and Cyber Threats: Continuous investment in tools, system upgrades, and policy tightening.
• Impact of New Technology/Innovation: Continuous adaptation to technological advancements and customer expectations.
• ESG Compliance: Increased focus on ESG integration.

ESG Initiatives and Metrics #

• Environment: Net Zero commitment by 2050; 14,000+ solar sites added during the year and diesel consumption reduced by almost 12% from FY23;100% recycling of battery and e-waste; Scope 1 emissions were reduced by 10% from FY23 and 15% from baseline.
• Social: 14.34 million lives impacted through CSR programs; gender diversity increased to 11.8% from 6.31%; 24% reduction in Lost Time Injury (LTI) incidents from FY23.
• Governance: Secured ‘B-’ in CDP for coordinated action on climate issues; 88% improvement observed during partner re-assessment for ESG maturity.
• CSR Spending: Total CSR expenditure of I 1,373 Mn with 40% Y-o-Y increase, 14.34 million lives benefited, marking 46% increase Y-o-Y.

Management Outlook #

• Expects continued rollout momentum from major customers, especially in rural areas.
• Sees significant opportunities from a major customer’s planned network expansion and fundraise.
• Focus remains on capturing growth opportunities, strengthening the balance sheet, and maximizing free cash flow generation.
• Continuous enhancement of network capabilities through technological solutions to maintain industry leadership.
• Continued investment in sustainability initiatives to achieve long-term ESG targets.

Detailed Analysis #

Financial Analysis of Indus Towers Limited #

Balance Sheet Analysis: 3-Year Comparative #

(Amounts in millions of Indian Rupees)

*Restated. Based on available details, there is an addition in 2022 amount.

Significant Changes in Major Line Items (>10% YoY) #

• Non-current Assets: Increased by 20% (75,278 Mn) from 378,741 Mn to 454,019 Mn, primarily due to increases in property, plant, and equipment, and Right of Use Assets.
• Current Assets: Increased by 20.3% (17,782Mn) from 87,210 Mn to 104,992 Mn, caused by increase in trade receivable.
• Equity: Increased by 28% (59,393) from 211,347 Mn to 270,740 Mn, mainly due to increase in retained earnings.
• Non-Current Liabilities: Increased by 7.9% due to rise in Lease liabilities and provisions.
• Current liabilities: Increased by 24.4% (19,944 Mn) from 81,604 Mn to 101,548 Mn due to increases in borrowings, trade payables, and other financial liabilities.

Working Capital Trends #

• Working capital has decreased, with a bigger increase in Current Liabilities than current assets.

Asset Quality Metrics #

• The proportion of Allowance to Total Receivables has decreased, the overall allowance for doubtful receivables and advances remains very high, reflecting the material uncertainty around a major customer.

Debt Structure and Maturity Profile #

• The Company’s debt is a mix of long-term and short-term borrowings, including term loans and non-convertible debentures.
• A significant portion of debt is maturing in the short term (current maturities of long-term borrowings).
• A debt-equity ratio of 0.16, without lease liabilities.

Off-Balance Sheet Items #

• Contingent Liabilities: C 119,076 Mn as of March 31, 2024, primarily related to disputed tax matters. The major amount under dispute, are not considered as contingent liabilities, but for disclosure purpose, the amount has been indicated in the notes.
• Guarantees: C 1,207 Mn in guarantees issued by banks and financial institutions.
• Capital Commitments: C 5,205 Mn.
• Operating Lease Commitments: Future minimum lease income is disclosed, highlighting the Company’s role as a lessor.

Operating Performance of Indus Towers Limited #

Revenue Breakdown #

• Indus Towers operates as a single reportable segment: providing passive telecom infrastructure services.
• Geographical Focus: The Company operates solely within India, across all 18 telecom circles, covering 28 States and 8 Union Territories. It does not currently serve international markets.

Cost Structure Analysis #

Major cost components for FY 2023-24 include:

• Power and fuel: C 111,499 Mn (largest expense).
• Employee benefit expenses: C 7,823 million.
• Repairs and maintenance: C 13,991 million.

Margin Analysis #

• Operating Profit Margin (EBITDA Margin): 51.4% for FY 2023-24, increased from 34.4% in FY 2022-23.
• Net Profit Margin: 21.1% for FY 2023-24, increased from 7.2% in FY 2022-23.

Non-Recurring Items #

• FY 2022-23 included an exceptional item of C 4,928 Mn, representing an impairment charge related to revenue equalization assets for a major customer.

GAAP vs. Non-GAAP Measures #

• The provided document defines some non-GAAP measures like Adjusted Fund from Operations (AFFO) and Operating Free Cash Flow. The reconciliation to GAAP measures isn’t directly presented in the document but these measures use EBITDA, excluding other income and adding back non-cash expenses.

EPS Analysis #

• Basic EPS: C 22.42 for FY 2023-24, increased from C 7.58 in FY 2022-23.
• Diluted EPS: C 22.42 for FY 2023-24, increased from C 7.58 in FY 2022-23.

Cash Flow and Liquidity Analysis of Indus Towers Limited #

Operating, Investing, and Financing Cash Flow Components (Consolidated) #

• Operating Cash Flow (OCF): Increased to ₹ 115,821 Mn in FY24 from ₹ 79,048 Mn in FY23, driven by improved collections from a major customer. Profit before tax saw significant growth, though moderated by non-cash adjustments including depreciation, and finance income.
• Investing Cash Flow (ICF): Net outflow of ₹ 75,458 Mn in FY24, a significant increase compared to an outflow of ₹ 17,300 Mn in FY23. This was primarily due to record tower additions, leading to higher capital expenditures. Proceeds from the sale of mutual funds also contributed to cash flows from the investing activities.
• Financing Cash Flow (FCF): Higher cash outflow with a net outflow of ₹ 39,956 in FY24 compared to an outflow of ₹ 71,326 due to no dividend payout amid concerns over collections from a major customer.

Working Capital Management Efficiency #

• Trade receivables turnover ratio increased to 5.05 in FY24 from 4.76 in FY23.
• Debtors turnover period has seen improvement during the year, and the Company has taken several steps to collect outstanding dues.

Capex Analysis #

• Total Capex for FY24 was ₹ 96,975 Mn, a 135% increase Year-on-Year, driven primarily by record tower additions and network expansion.
• Capex productivity decreased from 78% in FY23 to 61% in FY24.
• ₹ 1,488 Mn was invested in energy efficiency Capital expenditure.

Dividend and Share Buyback Trends #

• No dividend was declared or paid for FY24, a departure from previous years.
• There were no buybacks, only reissuance of treasury shares.

Debt Service Coverage #

• The Interest Coverage Ratio (EBITDA/Net Finance Cost) significantly improved to 19.98 in FY24 from 6.72 in FY23, reflecting enhanced profitability.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio slightly decreased to 1.03 in FY24 from 1.07 in FY23.
• Cash and cash equivalents increased to ₹ 631 Mn in FY24 from ₹ 224 Mn in FY23.

Operational Metrics #

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE (Return on Equity): FY24: 25.1%; FY23: 9.4%; FY22: 33.5%. A significant increase is observed in FY24 compared to FY23, but it still is less than FY22.
• ROCE (Return on Capital Employed): FY24: 19.4%; FY23: 11.0%; FY22: 25.7%. Demonstrates improvement in FY24, but less than FY22.
• Net Profit Margin: FY24: 21.1%; FY23: 7.2%; FY22: 23.0%. Shows an increase in FY24, approaching pre-provisioning levels.
• EBITDA Margin: FY24: 51.4%; FY23: 34.4%; FY22: 53.9%. A very notable increase versus FY23 because FY23 EBITDA margin has been affected by provisions.
• EBIT Margin: FY24: 29.7%; FY23: 15.3%; FY22: 34.5%.

Liquidity Metrics #

• Current Ratio: FY24: 1.03; FY23: 1.07. A slight decrease is shown, indicating a minor reduction in short-term liquidity, remains close to 1.

Efficiency Ratios #

• Asset Turnover: Not directly provided, but Revenue from Operations increased only 0.8% year-on-year with a total tower increase of more than 15% in FY24
• Debtors Turnover: FY24: 5.05; FY23: 4.76. A small increase is observed.

Leverage Metrics #

• Debt-to-Equity Ratio: FY24: 0.16; FY23: 0.22. Leverage improved, reflected by the decrease.
• Interest Coverage Ratio: FY24: 19.98; FY23: 6.72. A very large increase is observed due to increased EBIT and one-off provisions in the prior year.

Indus Towers Financial Analysis: FY24 Insights #

Revenue and Profitability #

• Revenue from operations grew by 0.8% YoY to ₹ 286,006 million. Adjusted revenue, excluding one-offs and provisions, grew by 4.7% YoY.
• EBITDA increased by 50.4% YoY to ₹ 146,939 million, with an EBITDA margin of 51.4%. Adjusted EBITDA grew by 4% YoY.
• Profit after tax (PAT) increased by 196% YoY to ₹ 60,362 million. Adjusted PAT decreased by 1.2% YoY.
• Operating Free Cash Flow (OFCF) was ₹ 18,230 million, lower than ₹ 26,182 million in the previous year.
• Return on Capital Employed stands at 19.4%.

Market Share and Competitive Position #

• Indus Towers is the largest telecom infrastructure company in India.
• The company has a portfolio of approximately 220,000 macro towers and over 368,000 co-locations.
• The closing sharing factor was 1.68 times.
• Indus Towers added record towers during FY24, with 3.5x tower growth.
• The company has an industry-leading tenancy ratio of 1.68.

Key Products/Services Performance #

• The primary service is providing passive telecom infrastructure on a shared basis.
• Focus on deploying in-building solutions (IBS) and small cells, with 621 IBS sites and 1,168 co-locations.
• Deployed over 72,000 5G sites during FY24.
• Fiber to the Home (FTTH) is under a pilot programme in Mumbai, with 90,000 Home Passes.
• Established an Enterprise Vertical to focus on Institutional Acquisition (IA), offering bundled solutions.

Geographic Distribution and Market Penetration #

• Indus Towers has a pan-India presence, operating in all 18 telecommunication circles.
• Over 60% of newly installed towers in FY24 were in rural India.
• Presence includes 36 states and Union Territories.

CAPEX and ROIC #

• Capital expenditure (Capex) for FY24 was ₹ 96,975 million, a 135% YoY increase.
• Return on Capital Employed (ROCE) Pre-Tax (LTM) was 19.4% in FY24.

Operational Efficiency Metrics #

• Achieved a record high network uptime of 99.965% in FY24.
• Decreased diesel consumption by ~12% compared to the previous year.
• Opex productivity improved by 16% compared to last year.
• 91% of sites are outdoor, contributing to energy efficiency.
• DG-Free Sites exceeded 60,000.
• Solar-powered sites increased ten-fold to over 14,000 during FY24.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Increasing market share through faster tower deployment, streamlined logistics, and digital transformation.
  • Expansion into rural areas.
  • Accelerated 5G deployment.
  • Developing new revenue streams through IBS/Small Cells, FTTH pilots, and exploring opportunities in satellite communications.
  • Partnering with NTPC to expand the renewable energy portfolio.
  • Partnering with IOC Phinergy for zero-emission energy systems.
• Challenges:
  • The financial health of a major customer presents a risk.
  • Adapting to the evolving technological landscape.
  • Managing potential impacts from regulatory changes and statutory compliances.
  • Ensuring data security and mitigating cyber threats.
  • Addressing increase in scope 2 GHG emissions.
  • Navigating litigations and new levies.

Segment-Wise Financial Analysis: Indus Towers Limited - Risk Assessment #

1. Strategic Risks #

1.1. Loss of Competitive Advantage #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation: Maintaining strong customer relationships, timely rollouts, cost-efficiency, and a pan-India presence.
• Control Effectiveness: Partially Effective.
• Potential financial impact: Material financial loss due to decreased market share.

1.2. Diversification #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation: Identifying and monitoring new business opportunities.
• Control Effectiveness: Partially Effective.
• Potential financial impact: Moderate financial loss due to inability to adapt in a evolving telecom industry.

2. Operational Risks #

2.1. Network Reliability/Asset Management #

• Severity: High.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation: Regular asset verification and a structured asset integrity program.
• Control Effectiveness: Effective.
• Potential Financial Impact: May lead to Financial misstatements and reduced asset utilization

2.2. Reconciliation Differences #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation: Access to comprehensive field data, timely monitoring, and resolution of disagreements.
• Control Effectiveness: Partially Effective.
• Potential financial impact: Financial loss due to unrectified disagreements.

2.3. People Safety #

• Severity: High.
• Likelihood: Medium.
• Trend: Improving.
• Mitigation: Regular review and update of safety policies, use of safety equipment, safety training programs, and technological interventions.
• Control Effectiveness: Effective.
• Potential Financial Impact: Significant, could lead to increased operational costs, decreased productivity, and public safety incidents.

2.4. Natural Disasters #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation: Asset insurance covering replacement value, and a Business Continuity Plan (BCP) for preparedness, response, and recovery.
• Control Effectiveness: Improving.
• Potential Financial Impact: Major financial loss due to asset damage.

3. Financial Risks #

3.1. Key Customer Financial Health #

• Severity: High.
• Likelihood: Decreasing.
• Trend: Improving.
• Mitigation: Continuous monitoring of customer receivables and ageing, execution of action plans.
• Control Effectiveness: Moderate.
• Potential financial impact: Subdued cash flows, impairment of receivables.

3.2. Inflated Commodity Prices #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation: Value addition, engineering to limit material consumption, effective planning and forecasting.
• Control Effectiveness: Effective.
• Potential financial impact: Could impact our profitability and cash flows.

4. Compliance/Regulatory Risks #

4.1. Statutory Compliances, Regulations, and Reforms #

• Severity: High.
• Likelihood: Medium.
• Trend: Stable.
• Mitigation: Regular monitoring of changes in tax, regulatory, and statutory landscape, engaging with industry bodies.
• Control Effectiveness: Effective.
• Potential financial impact: Litigation or new levies may lead to significant financial loss.

4.2. Data Security and Cyber Threats #

• Severity: High.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation: Regular security incident impact assessments, Data Loss Prevention (DLP) policy, ISO 27001:2022 and ISO 27017:2015 certifications.
• Control Effectiveness: Effective.
• Potential financial impact: Service interruptions, loss of reputation, operational disruptions, and revenue loss.

4.3. ESG Compliance Across the Organisation #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation: Integrating ESG priorities into strategic decision-making, devising and monitoring a roadmap for implementation.
• Control Effectiveness: Improving.
• Potential Financial Impact: Adverse impact on reputation and investor perception if targets are not met.

5. Emerging Risks #

5.1. Impact of New Technology/Innovation #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Increasing.
• Mitigation: Customer-centric approach, readiness to adopt new technologies, offering effective solutions.
• Control Effectiveness: Partially Effective.
• Potential financial impact: Inability to provide innovative solutions could lead to loss of long term sustainability of organization.

5.2. People Retention and Succession Planning #

• Severity: Medium.
• Likelihood: Medium.
• Trend: Improving.
• Mitigation: Monitoring attrition rates, succession planning approach, employee-centric policies.
• Control Effectiveness: Moderate.
• Potential financial impact: If attrition rate is not kept at optimal level may impact business operations.

Strategic Analysis of Indus Towers Limited #

Long-Term Strategic Goals and Progress #

• Indus Towers aims for Net Zero greenhouse gas emissions by 2050.
• The Company has established medium- to long-term commitments across Environmental, Social, and Governance (ESG) areas with short-term, measurable targets.
• Expansion of the renewable energy portfolio is a key long term goal. During FY24, over 14,000 solar sites were added, achieving a total installed solar capacity of 76 MW.
• Scope 1 GHG emissions were reduced by 10% from FY23 and 15% from baseline, though Scope 2 emissions increased by 12% due to business growth.
• The Company aims to positively impact 150 million lives through CSR by 2030. In FY24, 14.34 million lives were impacted.
• Gender diversity increased from 6.31% to 11.8% in FY24, with a long-term target of 30%.

Competitive Advantages and Market Positioning #

• Indus Towers is India’s largest telecom infrastructure company, with ~220k macro towers and over 368k co-locations.
• The Company maintains an industry-leading tenancy ratio of 1.68.
• Nationwide presence and long-term contracts with major telecom operators provide stability and expansion potential.
• Record tower additions in FY24 (more than triple the previous year) demonstrate a robust capacity for large-scale network expansion.

Innovation Initiatives and R&D Effectiveness #

• The Company has integrated digital platforms and tools to drive operational efficiency. Billing processes were transformed using OCR, RPA, Rule Engines, and Gen AI.
• The Company invested in a ‘Train the Trainer’ program to develop sustainability and ESG trainers among middle management and young leaders.
• More than 20,000 ideas have been submitted through the Indus Idea Incubator.
• More than 30 new digital solutions were delivered during FY24.
• Pilot in progress for 8.3MWp under Green Energy Open Access and partnership with NTPC Green Energy Limited to explore joint development of grid-connected renewable energy-based power projects.
• R&D activities are carried out with IIT Madras on Green Hydrogen.

Management’s Track Record in Execution #

• FY24 was marked by the highest-ever tower additions in the Company’s history, crossing 200,000 towers.
• The Company achieved an industry-high network uptime of 99.965%.
• Sustained collections from a major customer at 100% of the billed amount.
• Strategic priorities like market share increase, cost efficiency, and uptime enhancement showed considerable progress.

Capital Allocation Strategy #

• Significant Capex investments were made during the year (C 96,975 Mn), driven by a major customer’s accelerated rollouts.
• Focus on deploying capital to capture growth opportunities and strengthen the balance sheet.
• Increased share in the business with major customers, driven by their network expansion strategies.
• Investment in energy efficiency capex, totaling C 1,488 Mn.

Organizational Changes and Their Impact #

• Restructuring was done to establish a New Built vertical for growth and enhancing the RUN vertical for operational excellence.
• Introduction of Field team incentive programme for the first time to reward the frontline force.
• Launched an EV policy to incentive employees for eco-friendly options.
• Introduced Circle of Learning for ESG Best practices to improve the ESG performance.
• Established an Enterprise Vertical dedicated to Institutional Acquisition (IA).

ESG Framework #

ESG and Sustainability Analysis #

Environmental Metrics and Targets #

• GHG Emissions: Scope 1 emissions decreased by 10% from FY23 and 15% from the baseline. Scope 2 emissions increased by 12% compared to FY23 due to increased energy consumption from higher tower rollouts and 5G equipment loading.
• Diesel Consumption: Diesel consumption was reduced by ~8-12% compared to the previous year, despite increased energy load from 5G.
• Renewable Energy: Solar-operated sites were increased tenfold to over 14,000 during the year. A pilot project for 8.3MWp under Green Energy Open Access is in progress. An MOU was signed with NTPC to explore grid-connected renewable energy projects.
• Waste Management: 100% of hazardous battery waste and e-waste were sold to authorized recyclers.
• Net Zero Goal: The company has committed to achieving Net Zero greenhouse gas emissions by 2050. Medium-term emission targets are being validated by SBTi.
• Site Statistics: 91% of total sites are outdoor sites.

Social Responsibility Programs #

• CSR Expenditure: C 1,373 Mn was the total CSR expenditure with C 1,222.54 Mn spent in FY24, and C 150.70 Mn was allocated to ongoing projects.
• Lives Impacted: 14.34 million lives were impacted through CSR activities in FY24.
• Programs: 19 CSR programs were executed, focusing on education, girl child empowerment, skill development, digital literacy, and disaster relief.
• Employee Volunteering: 680+ employees volunteered under the Personal Social Responsibility Program.
• Education Beneficiaries: 2.7+ Mn students benefited.

Governance Structure and Effectiveness #

• Board Oversight: The Board of Directors provides oversight and sets strategic priorities for ESG. An ESG Committee, a Board Committee, guides goal setting, targets, and monitors performance.
• ESG Governance: An ESG Council (Management Committee Members) is responsible for setting and achieving goals. A Cross-Functional Working Group implements initiatives. Circle ESG Councils are established.
• Code of Conduct: 98.3% of employees completed Code of Conduct training.
• Cybersecurity: ISO 27001:2022 and ISO 27017:2015 certifications validate the implementation of a strong information security management program.
• Board Diversity: The Board includes two women Independent Directors.
• Committee Leadership: Each Board Committee has an Independent Chair.
• Conflict of Interest: Transactions with related parties are in the ordinary course of business and on an arm’s length basis.

Sustainability Investments and ROI #

• Capex on Energy Efficiency: C 1,488 Mn was invested in energy efficiency.
• Operational Efficiency: Conversions from indoor to outdoor sites and electrification of sites reduced reliance on diesel generators. 99.79 sites were electrified, and over 60,000 sites are DG-free.

ESG Ratings and Peer Comparison #

• CDP Rating: Secured ‘B-’ in CDP, indicating coordinated action on climate issues.
• Partner ESG Score: An 88% improvement was observed in the average partner ESG score compared to FY23. ESG maturity assessment was extended to 30 additional partners.

Regulatory Compliance and Future Preparations #

• Regulatory Compliance: The Company is compliant with applicable environmental laws and regulations.
• Advocacy: The Company engages with authorities including FOIR, DoT, and MoP on regulatory matters, such as the use of street furniture for 5G and smart meter deployment.
• Telecommunications Act, 2023: The Company is adapting to the provisions aimed at establishing a robust telecom network and addressing challenges like Right of Way (RoW).

Indus Towers Limited: Future Outlook and Financial Analysis #

Management Guidance and Assumptions #

• The management is focused on maximizing long-term shareholder value.
• Assumptions used in financial projections are based on parameters available at the time of the financial statements’ preparation.
• The management is continuously monitoring and improving the efficiency of its business operations.

Market Growth Forecasts #

• Wireless broadband penetration in India stood at ~76% as of FY24, up from 71% in FY23.
• Total 5G subscribers are expected to grow from 131 million in 2023 to 575 million by 2026.
• Average monthly data traffic per user is projected to increase from 24.1 GB (December 2023) to 28-30 GB by the end of 2024.
• Internet penetration in rural areas is expected to reach 56% by 2025.
• The EY-DIPA report projects the need for small cell deployments in India is forecast to 475,000- 550,000 by 2025.

Planned Strategic Initiatives #

• Increase market share by capitalizing on network expansion, especially in rural areas, and 5G rollouts.
• Continue to expand its IBS deployments to improve indoor network coverage.
• Further develop ‘iDoT’, a digital platform to improve site monitoring, operations, and energy analytics.
• Expand renewable energy portfolio through distributed solar installations and Green Energy Open Access (GEOA) agreements.
• Reduce diesel consumption via energy storage solutions, renewable energy integration, and site conversions.
• Enhance workforce diversity, targeting 30% gender diversity in the medium- to long-term.
• Continue to strengthen the relationship with landlords by using digital tools to improve efficiency and transparency.
• Explore the use of drones for site survey and equipment inspections.
• Establish fully fledged battery analytics to improve battery efficiency.

Capital Expenditure Plans #

• FY24 capital expenditure was H 96,975 Mn, driven by record tower additions.
• Future Capex will focus on capturing growth opportunities, such as network expansion and 5G rollouts.
• Investment in standardized products, data-driven resource planning, and infrastructure refurbishment.

Efficiency Improvement Targets #

• Continued focus on cost efficiency through technology leverage, automation, productivity enhancement, and resource optimization.
• Further reduction in diesel consumption.
• Process automation and standardization to optimize procurement and enhance equipment lifecycles.
• Enhance network uptime (99.965% achieved in FY24) through technological solutions.
• Continue with vendor and partner negotiations and implement sustainable procurement practices.
• Aim to receive Titanium certification for its remaining warehouses by CII.

Potential Challenges and Opportunities #

Challenges #

• Financial Health of Operators: The financial instability of a major customer could lead to payment defaults and impact revenue.
• EMF Radiation Norms: The concerns regarding EMF radiations in public and resulting challenges in deploying new towers.
• Technology Changes: Risk from rapid technology changes which include new product designs and product portfolio additions.

Opportunities #

• Network Expansion: A major customer’s fundraise and network expansion plans present growth opportunities, as other major customers roll out 5G networks.
• Data Consumption Growth: Increased data usage and 5G adoption drive the need for network expansion.
• Rural Market Penetration: Significant growth potential exists in underpenetrated rural areas.
• 5G Rollout: Loading opportunity presented by 5G site deployments and future small cell deployments.
• New Product Portfolio: Product offering portfolio expanded by introducing the new lighter and environment friendly products.
• Business Adjacencies: Opportunities exist in EV charging infrastructure, outdoor advertising, and edge computing infrastructure.
• Regulatory Actions: Government initiatives like the Telecommunications Act, 2023, and the Green Energy Open Access policy support infrastructure development.
• Institutional Acquisition: Partnership with states, educational institutions and defense sites for expansion of tower construction, security and maintenance.

Scenario Analysis and Sensitivity to Key Assumptions #

• Customer Financial Health: The improved collection from major customer to 100% of billed amount bodes well for the collections of past dues. Continued monitoring of the ageing of customer’s receivables is a key focus area.
• Interest Rate Sensitivity: A 100 basis points change in interest rates would impact pre-tax profit by C 281 million in FY24.
• Technological Changes Sensitivity: The company is actively involved in adapting and responding to the innovations. They are also working along with their customers to come up with innovative solutions.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditors issued an unmodified opinion on the consolidated and standalone financial statements, indicating compliance with Indian Accounting Standards (Ind AS) and a true and fair view of the financial position and performance.
• There is a qualification in standalone financials that the accounting software did not have a feature of recording audit trail.
• Emphasis of Matter: Material uncertainty was highlighted regarding one of the Company’s largest customers and its financial condition.

Key Accounting Policies and Changes #

• The Group adopted the “Pooling of interest” method in FY 2020.
• Accounting policies were consistently applied unless new or revised standards mandated changes.
• The useful life of power equipment included in plant and machinery was revised from 10 to 8 years, and the salvage value of batteries was revised from 35% to 45%, both effective July 1, 2023.
• There were no material changes in accounting policy.
• The Group has adopted the amendments to Ind AS w.e.f April 1,2023 and they did not have any material impact.

Internal Control Effectiveness #

• The Company maintains adequate internal financial controls over financial reporting, which were operating effectively, as per an independent audit.
• A robust framework exists for evaluating the effectiveness of internal control systems, including testing by the Audit & Risk Management Committee.

Regulatory Compliance Status #

• The Company has complied with the provisions of applicable corporate laws.
• The Company maintains proper books of account as required by law, except for not complying with the requirement of audit trail.
• No frauds have been reported by the Statutory Auditors
• The Annual Secretarial Compliance Report confirms compliance with applicable SEBI regulations and circulars.

Legal Proceedings and Potential Impact #

• The Company is involved in ongoing litigations with various regulatory authorities and third parties, primarily concerning tax disputes (stamp duty, entry tax, sales tax/VAT/GST, municipal taxes, service tax, income tax) and other claims.
• Contingent liabilities relating to disputed tax matters exist; these are disclosed, but their eventual outcome is uncertain.
• There are no significant and material orders passed by the regulators, courts or tribunals impacting the going concern status and the Company’s operations.

Related Party Transactions #

• All related party transactions were conducted in the ordinary course of business and on an arm’s length basis.
• Prior approval from the Audit & Risk Management Committee was obtained for related party transactions.
• Material related party transactions occurred with Bharti Airtel Limited, Bharti Hexacom Limited, and Vodafone Idea Limited.

Subsequent Events #

• No material changes or commitments affecting the Company’s financial position occurred between the end of the financial year and the date of the report.

Analysis of Accounting Quality #

• The Company’s accounting quality is influenced by the application of judgments and estimations, especially in revenue recognition, assessment of the recoverability of receivables, provisions for doubtful debts and advances, asset retirement obligations, income tax provisions, and contingent liabilities.
• The change in estimated useful life and salvage value for certain assets within property, plant, and equipment is a notable accounting estimate change affecting depreciation.

Regulatory Risk Assessment #

• Regulatory risk stems from ongoing tax litigations and the uncertainty of outcomes.
• Compliance with the Telecommunications Act, 2023, and other regulatory changes are vital for the Company’s operations.
• No instance of non-compliance of any requirement of corporate governance has been identified except for the audit trail.