Independent telecom tower companies (towercos) are expected to spend Rs 210 billion over fiscal years 2025 and 2026 to support the telecom companies (telcos) in expanding rural networks and improving service quality in urban areas. An analysis of three towercos, accounting for around 90 per cent of the towers in the independent telecom tower industry indicates as much.
The capital expenditure (capex) for the next two years is, however, lesser than Rs 230 billion in the last two fiscal years when the country saw rapid deployments of fifth-generation or 5G network deployments India’s top two telcos Reliance Jio and Bharti Airtel, as per CRISIL’s research note.
While the capex is expected to see limited demand risk, navigating the counterparty risks will be crucial. However, healthy cash accruals, which will also be used to fund the capex, provides comfort to the credit profiles.
Nearly 58,000 towers have been added over fiscal 2023 and 2024, including new towers and acquisition of towers by independent towercos, according to CRISIL.
According to CRISIL, going forward, the tenancy ratio is expected to remain steady at 1.41-1.42 tenants per tower, but this would be on the back of additional tenancies coming from telcos with relatively weaker credit profiles. Hence, the ability of the towercos to optimally pursue better returns on their capex while managing their counterparty risk will be crucial. Historically, this has led to substantial provisions against receivables, although, there have been signs of recovery, particularly in the first half of fiscal 2025.
Over the past few fiscals, even as the number of towers rose, average rental realisation moderated 3-5 per cent because of discounts on renewals and demand for leaner4 towers. Yet the outlook on the earnings of towercos remains stable, given their annuity-like cash flows on the back of long-term price contracts with telcos, cost passthrough clauses and inbuilt annual price escalations. The earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) margin of towercos is expected to stabilise at 46-48 per cent, a slight moderation from the past.
