Reliance Jio increased focus on infrastructure set to hurt Indus towers  

Motilal Oswal Financial Services on Monday said that the “increased focus on infrastructure” by Reliance Jio may “weaken” the positioning of Indus Towers. The Indian diversified firm engaged in the financial services in a report said that the “long-term overhang of business viability continues” for Indus Towers, a company that offers infrastructure services to wireless services providers. The report is on the heels of Indus Towers announcing its third-quarter financial results for the period ended December 31, 2020, with the company recording Rs 6736 crore in consolidated revenues.

Long Term Concerns Prevail for Indus Towers
Indus Towers said that the consolidated revenues recorded in its third-quarter translate to a 5% year-over-year (YoY) increase. The company is said to have a total tower base of 175,510 as of December 31, 2020, while it recorded Rs 1360 crore in net profit, translating to a 2% YoY increase.

“This was a milestone quarter for the Company with the completion of the merger between Bharti Infratel Limited and erstwhile Indus Towers,” Bimal Dayal, managing director and CEO of Indus Towers said in a release on Thursday. “The two companies have come together with zero disruption with customers and other stakeholders in the last few months, a testament to the strength of the people that have been working collaboratively across teams.”

Dayal also said that the “potential for passive infrastructure remains vibrant” due to the “newer technologies and developments in the telecom space.”

“Operationally, we have witnessed strong network rollouts across the country and the Company has reported its highest ever net tower additions in a quarter,” Dayal said in the release on Thursday.

Bharti Airtel, Vodafone Idea and Reliance Jio are the “largest customers” of Indus Towers with the company said to have a presence in all 22 telecom circles across India.

“The company is revalidating its growth strategy and believes future growth is hinged on small cells, smart cities, fiber, WiFi, data centers and the macro tower business,” Motilal Oswal said in a report on Monday. “However, given that VIL (Vodafone Idea) is a significant contributor to the company’s revenue, which is facing liquidity risk due to its huge cash obligations, long term concerns still prevail.”

Vodafone Idea Struggles to Impact Indus Towers
Similarly, Dolat Capital, a firm engaged in the financial markets on Sunday said that the “strong tower additions, tenancy growth” aided Indus Towers in the third quarter of the current financial year. Crucially, the firm said that the scenarios such as the Vodafone Idea shutdown may “significantly impact the business of Indus.”

“VIL’s struggle with fund-raise and lack of tariff hikes increases this risk,” Dolat Capital said in a report on Sunday.

Dolat Capital also highlighted that the 3416 tower additions by Indus Tower in its third quarter of the current financial year was its highest since its listing in 2012.

In its quarterly report, Indus Towers said that it has “assured future revenues and cash flows” due to multiple factors including “long term contracts” with leading wireless operators in India. The company highlighted that the contracts offer “visibility” on its future revenues. Indus Towers also highlighted Qualcomm and Reliance Jio expanding their efforts on 5G solutions as a “key industry development” in the country.

The telecom infrastructure segment in India has gained significant traction in the past year with multiple companies expanding their presence across the country. Similar to most other operators, Reliance Jio has inked deals with multiple other companies including American Tower Corporation (ATC) for infrastructure. It also has to be noted that GIC, a sovereign wealth fund alongside Brookfield Infrastructure Partners acquired a 100% stake in a tower company from Reliance Industrial Investments and Holdings Limited in late 2020. GIC along with Brookfield Infrastructure Partners in return received a portfolio of around 135,000 communication towers across India forming the infrastructure backbone of Reliance Jio’s telecommunications network.

Sam Pollock, the chief executive officer of Brookfield Infrastructure Partners in the third-quarter earnings call said that the company is expecting a “significant growth” to come out of the acquisition. The Brookfield CEO also said that the company is planning to construct roughly 40,000 towers at a capital expenditure of US$1.5 billion.

“We are hopeful that as they (Reliance Jio) continue to grow their franchise across India, and today, they are, I think, by far, the largest company in the country, we see opportunities to do more things with them,” Pollock said in the third-quarter earnings call in November. “So we’ll continue to look for that, but there’s nothing that we can tell you today that’s in the works.”

Similarly, ATC in early November 2020, said that it was on track to build around 3500 new tower sites in India by the end of 2020. ATC is said to own and operate 74,569 tower sites in India as of September 30, 2020. Airtel, Vodafone Idea and Reliance Jio are said to be major telecom operators to be engaged with ATC in India.

The companies offering the infrastructure to the wireless operators in India including GIC and Indus Towers are positive about the growth potential due to the increase in data consumption and data users across the country. TelecomTalk