Thursday, Apr 25 2024 | Time 18:41 Hrs(IST)
image
Business EconomyPosted at: Dec 11 2017 1:30PM


Telecom Tower Industry Is Expected To Undergo Structural Changes In Medium Term: ICRA

Mumbai, Dec 11 (UNI) The telecom tower industry is expected to undergo structural changes in the medium term. Currently, the industry, with around four lakhs towers and about eight lakh tenancies, is a sizeable one in the world.
It has ten organized players (apart from many small tower owners) wherein 74 percent of the portfolio is held either by tower companies promoted by telecom operators, or by telecom operators themselves. Over the next 1-2 years, there is likely to be a material change in the industry structure with a number of players expected to reduce to 4-5.
The key development for the industry would be the likely change in ownership from telecom operators to independent players, as reflected by the consolidation transactions underway and by the interest from such players and investors. The industry is also likely to witness strong growth in the coming years primarily driven by the network expansions by telecom operators, and upside in rentals due to improved negotiation power which would follow from consolidation as well as from greater independent ownership. At the same time, the consolidation transactions could entail migration of some debt to the tower industry from the telecom industry, where elevated debt levels remain an area of concern.
Commenting on this, Harsh Jagnani, Sector Head & Vice President - Corporate Ratings, ICRA elaborates ''The industry generates steady cash flows given its indispensability to the telecom services and benefits from the inherent strengths of the lease agreements or Master Service Agreements (MSA) which include: long tenure (the MSAs range from 10-15 years), penalties on exit before a fixed lock-in period, per annum escalations in rentals, and incentivizing addition of new tenants. This, along with moderate capex over the last few years has enabled many tower companies to achieve strong financial profile with a steady reduction of debt. The industry is now on a solid footing to expand as the telecom sector looks for greater and deeper network expansions to meet the growing need for data.''
All these factors have led to a more considerable interest in the industry from institutional investors and independent tower companies. Simultaneously, the significant pressures on cash flows and stretched capital structure of the telecom sector have forced the operators to reduce their debt levels by monetizing their tower asset ownership. As per ICRA estimates, debt to the tune of Rs. 80,000-90,000 crores can be pruned from the telecom industry if the stake sale transactions of tower assets currently under discussions materialize. A significant portion of this could be funded by debt in the tower industry, to be supported by its relatively stronger capital structure and greater predictability of cash flows.
As per ICRA estimates, over the last four years, the telecom tower tenancies have grown at CAGR of 5.5 percent , while the growth in rentals has been nominal. The Average Revenue per Tower (ARPTo) for a sample of companies has grown at CAGR of close to 4 percent . However, the current valuations of tower companies indicate expectations of stronger business growth, fuelled by the expanding data usage and the rollout of next-generation networks.
Tower companies may also look beyond traditional business and explore opportunities in areas such as in-building solutions, Wi-Fi hotspots, fabrication, etc., although the business models around these remain to be developed. In addition, possible upsides to the cash flows for the tower companies are growing in rentals due to improvement in the negotiation power of tower companies; and reduction of power expenses, primarily diesel consumption, aiding the growth in profitability. Tower industry can also explore the REIT/InvIT (Real Estate Investment Trust or Investment Trust) structure to access a greater pool of investors.
On the credit impact, Mr Jagnani says ''ICRA estimates that the consolidation transactions in the tower industry would entail some debt migrating from the telecom industry to the tower industry. However, comfort is drawn from the tower industry’s relatively stronger balance sheet and greater predictability of cash flows.
As per ICRA estimates, the net debt of telecom tower industry stands at ~Rs. 18,000 crores as on March 31, 2017, having reduced from ~Rs. 28,000 crores as on March 31, 2013, translating into strong debt coverage metrics-Net Debt/OPBDITA of 1.1x and interest coverage of 7x.''
These long-term strengths aside, the industry would witness some headwinds in the short term '' primarily on account of rationalization of tenancies by the telecom operators who are undergoing consolidation. A saving grace would be that the culmination of the consolidation would coincide with the revival in capex by the telecom industry and thus the pruning of redundant tenancies would be compensated by the rollout of newer ones.''
UNI JS NV1330
Please log in to get detailed story.
Tags: #Telecom Tower Industry Is Expected To Undergo Structural Changes In Medium Term: ICRA
More News

ACC net jumps 300 pc to Rs 945 cr in Q4; Dividend at Rs 7 50 per share

25 Apr 2024 | 6:33 PM

New Delhi, April 25 (UNI) Adani Group Company ACC Limited (ACC), a cement and building materials company, today announced a 300 percent jump in net profit to Rs 945 crore during the fourth quarter of 2023–24, up from Rs 236 crore in the same quarter last year.

see more..

25 Apr 2024 | 6:30 PM

Chennai, Apr 25 (UNI) The Board of Directors of Wendt (India) Ltd, part of Murugappa Group, met
on Thursday and approved the audited financial results for the quarter and year ended March 31, 2024.

see more..

Surge in shipments to WANA, CIS countries push engineering exports in FY24 : EEPC India

25 Apr 2024 | 6:01 PM

Kolkata, Apr 25 (UNI) Primarily on the back of a surge in shipments to West Asia and North Africa (WANA), North East Asia, and CIS countries, annual engineering goods exports from India turned positive in fiscal 2023-24.

see more..

Godrej & Boyce contributes to India’s energy transition initiatives; Undertakes orders worth 1000 Cr plus in FY’24

25 Apr 2024 | 5:58 PM

Mumbai, Apr 25 (UNI) Godrej Electricals & Electronics, a business unit of Godrej & Boyce, has announced the acquisition of orders worth Rs 1000 Cr plus in FY24 for their Power Infrastructure business.

see more..
Sensex surges 486 50 pts

Sensex surges 486 50 pts

25 Apr 2024 | 5:10 PM

Mumbai, April 25 (UNI) Extending its winning streak for the fifth consecutive day in a row, the BSE Sensex rallied 486.50 points to close high at 74,339.44 on the strength of services, metal, power, and auto stocks amid a strong Asian market.

see more..
image