Indus Towers (formerly Bharti Infratel), India’s largest tower company, this week gave notice of its forthcoming Annual General Meeting (AGM) on August 3, 2021. Ahead of this event, and 8-months subsequent to the completion of its merger with Bharti Infratel, we review the operations, valuation, business fundamentals, customers, and market backdrop for Indus Towers.
Tower Infrastructure – Indus Towers
As of March 31, 2021, Indus Towers had 179.2k tower sites in India with a tenancy ratio of 1.80x. Indeed, this equates to 322.4k tenants with equipment on the company’s towers.
During the quarter ended March 31, 2021, the company added 3.7k towers, the highest rate of tower additions in its history. At the same time, net tenancy additions were 4.1k during the quarter.
Indus Towers’ unit economics for its customers, yields a revenue per tenant, per month of ~$580 (42.5k Indian Rupees). Given the company’s 1.80x tenancy ratio, its towers yield a revenue per tower, per month of ~$1.0k (77.8k Indian Rupees).
As of March 31, 2021, Indus Towers had a market capitalization of ~$9.0bn (660bn Indian Rupees) and an Enterprise Value of ~$11.6bn (853bn Indian Rupees). Indeed, this equates to an Enterprise Value per tower of $65k, on the company’s 179.2k tower sites.
Comparatively, Indus Towers’ valuation is low relative to recent towers precedent M&A transactions in India of >$80k per tower. However, we highlight below key tenant-related issues which Indus Towers faces that have implications for its lower valuation levels.
Key Customers – Indus Towers
India’s three wireless carriers Reliance Jio, Bharti Airtel, and Vodafone Idea are all significant customers of Indus Towers and are pivotal to the health of its business going forward.
Headwind – Vodafone Idea
Vodafone Idea has 282 million subscribers (~24% market share). Notably, the company is suffering from both market share losses and operating losses. In turn, this has caused the wireless carrier to seek an equity capital injection of ~$3.4bn (250bn Indian Rupees). As a result, Vodafone Idea has been reducing its existing tenancies on Indus Towers’ assets and limiting new tenancy additions.
Expansion – Reliance Jio and Bharti Airtel
Reliance Jio has 428 million subscribers (~36% market share) and Bharti Airtel has 353 million subscribers (~30% market share). Only Reliance Jio and Bharti Airtel are meaningfully investing in their networks in India, which gives them more bargaining power on lease rates with Indus Towers.
Tower Portfolio Renewal
Indus Towers notes that it has ~1/3rd of its tower portfolio up for renewal over the course of the next year. Therefore, renegotiations on rental rates may ensue, pressuring the long-term contracts that Indus Towers has in-place with its wireless carrier customers.
As a point of reference, Indus Towers entered into rental renewal negotiations in 2016. At this time, the company gave up its 2.5% annual rental escalators, in exchange for extending the term of its customer’s agreements by 5+ years.
India – Towers Market Overview
Overall, India has ~600k towers with a ~1.3x tenancy ratio. As of March 31, 2021, the largest tower companies in India, excluding Indus Towers, include:
- Summit Digitel (formerly Reliance Jio Infratel): 139k towers in India and is owned by Brookfield Infrastructure
- American Tower: 76.3k tower sites in India, which comprises 13% and 6.7% of the company’s property revenue and property gross margin, respectively
- BSNL Tower Corporation: 74k towers in India
- Reliance Infratel: 43k towers in India
- GTL Infrastructure: 28k towers in India
As India begins its initial 5G deployments, fiber-to-the-tower (FTTH) becomes critical to enabling the high-speed data transmission that 5G permits. However, in India only 30% to 35% of the country’s tower sites are connected with fiber. Indeed, there exists an opportunity for tower companies, like Indus Towers, to build ‘last-mile’ fiber that connects to their towers.