Indus Towers Limited (INDUSTOWER) Q1 2027 Earnings Call Transcript

Good afternoon, ladies and gentlemen. I am Neera, the moderator for this conference. Welcome to In This Towers Limited, first quarter, ended June 30, 2026, earnings call. For the duration of the presentation, all participant lines will be in the listen-only mode. After the presentation, the question and answer session will be conducted for all participants on this call. In case of a natural disaster, the conference call will be terminated post an announcement. Present with us on this call today is the senior leadership team of Indus Towers. Before I hand over the call, I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risks that we face. I now hand over the call to our first speaker of the day, Mr. Prachal Shah. Thank you, and over to you, sir.

Thank you, Nirav. And a very warm welcome to all participants. Joining me today are my colleagues, Mr. Vikas Puddar, CFO, and Mr. Deere Jagarwal, Head Investor Relations, on the call. Today, I will present our business performance for the quarter ended on June 30, 2026. Rollout momentum remained healthy during the quarter, supported by continued network expansion by our major customers and movement of their expired currency portfolios to Indus. We continue to maintain leading share in our customer deployments, resulting in significantly larger tenancy growth than our peers, driven by strong execution, service reliability, and technology-led operations. Before I delve into our performance, I would like to recognize the dedication and commitment of our field teams. Despite operating in some of the country's most challenging conditions, they delivered exceptional resilience, enabling timely connectivity along the Amarna-Syatra route. They also maintain network continuity, adversity in flood-affected Arunachal Pradesh, to swift restoration efforts, proactive planning, and strong local coordination. On the regulatory front, as I had mentioned earlier, the ROW rules 2024 have now been implemented across India, which will continue to benefit in seamless deployment of telecom infrastructure. Regulatory developments in Uttar Pradesh, Rajasthan, and Delhi further strengthened the Green Energy Open Access Framework, expanding renewable energy adoption opportunities for telecom infrastructure. I would like to call out the unparalleled support from the government and regulatory authorities for ensuring fuel availability for the industry, despite restrictions imposed on account of West Asia conflict. This helped us maintain uninterrupted operations. Moving to 5G networks, as per the latest report from TRI, 5G subscription base in the country grew by 36 million in Q4-FI26, totaling to over 427 million. The rising adoption of 5G is driving the demand for creating infrastructure to support the user experience. This is resulting in consistent 5G deployments by operators taking the installed base of 5G BTSS to 563,000. Up by 32,000 in Q1 FY27. Operators continue to focus on network densification and capacity augmentation to support rising data consumption and evolving use cases. We believe this will sustain investments in network expansion and support loading-led growth. We are well positioned to capitalize on the growth opportunity through our expansive tower footprint and long-standing customer relationships. Data consumption trends continue to remain robust, reflecting the deepening integration of digital services into everyday life. As per TRAI's latest publication, the total data consumption and average monthly data usage per user during Q4 FY26 grew by 31% and 20% year-on-year, respectively. The shift towards 5G networks has further accelerated this trend. According to TRAI, 5G usage alone grew 87% year-on-year, accounting for 43% of the total data traffic in Q4FI26, up from 30% in Q4FI25. These trends reinforce the need for sustained investment in network capacity augmentation, deeper coverage to meet rising customer demand, enabling growth opportunities for us. In terms of operational performance, order bookings remain strong from our major customers. We added almost 3,100 macro towers and 4,200 corresponding co-locations during the quarter, resulting in a year-on-year growth of 6.3% and 5.1% in tower and co-location base, respectively. As a result, the total macro tower and co-locations stood at around 267,600, and 432,300 respectively. Our industry leading tenancy ratio was stable at 1.62. Including lean towers, we ended the quarter with approximately 446,300 towers. Let me provide an update on our key KPIs. Making our network green and eliminating diesel usage is central to our strategy. We added solar access to about 3,700 sites during the quarter, taking the overall site count with solar access to about 46,000. We believe that there is significant runway to solarize at our portfolio. Diesel consumption on our sites has seen a reduction of 13% year-on-year in Q1 FI27. This is achieved despite growing co-locations and continued network loading at our sites. I want to underscore that all of this is delivered while maintaining network uptime and customer experience. Our network reliability remains robust with an uptime of 99.955%. I will now provide an update on our key strategic pillars, market share, cost efficiency, network uptime, and sustainability. On market share, we have further strengthened our position with the customers. Captured a healthy share of their network expansion and movement of the existing expired tendencies to Indus. Our performance is underpinned by dedication of our people, strong execution by our partner ecosystem, and resilient operating processes that help navigate supply chain disruptions while maintaining high standards of safety and quality. During the quarter, we further expanded our product portfolio with integrated ideas and built-to-suit hybrid solutions designed for large residential and commercial complexes, metro and railway stations, tunnels, highways, and marquee government establishments. These differentiated offerings have enabled us to further consolidate our leadership position and enhance our ability to address evolving connectivity requirements across a wider range of infrastructure use cases. Cost discipline remains a core pillar of strategy and deeply ingrained across the organization. Leveraging data intelligence and standardized operating frameworks, we continue to drive structural improvements in site rentals, supply chain efficiency, infrastructure costs, and partner management. Digital interventions are driving operating efficiencies in many ways, including improved field force productivity, enhanced network reliability through productive maintenance, automation of manual processes, Energy management is a key focus area from both a cost and sustainability perspective. During the quarter, we accelerated renewable energy deployment, expanded battery modernization initiatives, and further strengthened digital energy management capabilities, contributing to a 13% year-on-year reduction in diesel consumption. In addition, we have undertaken an ambitious program to replace diesel-based operations across a large portion of our sites with lithium-ion battery banks. This quarter was constrained as battery supplies were impacted due to ongoing geopolitical disturbances, but we expect to pick up steam on this project in the coming quarters. On CAPEX optimization, we have launched an internal platform aimed at simplifying tower design and site planning for our tower engineering teams, which will support the efficiency agenda. Our third priority, network uptime, remains fundamental to the reliability we deliver to our customers. It is a critical measure of service continuity and operating excellence. By strengthening visibility across the network and enabling faster and more precise field interventions, we are enhancing site availability, improving response quality, and building a more resilient operating backbone. This has resulted in year-on-year improvement in network stability. We have continued our ambitious digital operations transformation program. That remains a key enabler for network reliability and operating efficiency. Leveraging telemetry, IoT connectivity, AI-led image analytics, reporting automation, and leading workforce management application of X-Telify-farminated digital services. The ambition is to turn Indus into a technology-driven enterprise, setting industry benchmarks on how to operate distributed assets at scale. These capabilities are driving measurable improvements in workforce productivity, service assurance, energy management. Coming to ESG, our commitment to sustainable growth and inclusive development continues to translate into meaningful outcomes. As part of our decarbonization strategy journey, we have expanded our renewable energy footprint to solar deployments during the quarter, reaching an installed base of 259 megawatts. We also continue scaling up energy storage solutions to reduce diesel dependence and lower our carbon footprint. On the people's front, our employee-centric culture was recognized with the prestigious 13th Gallup Exceptional Workplace Award. We further strengthened our safety agenda through the launch of a campaign focused on enhancing material handling practices across our operations. In CSR, we remain committed to positively impacting 150 million lives by 2030. During Q1, our flagship programs, Saksham, Pragati, along with Bharti et al. foundation, touched approximately 12 million lives across education and skill development, diversity and inclusion, digital literacy, health and hygiene, and community development. Our flagship initiatives, Nari Samban, which promotes health and hygiene, touched 11 million lives in Q1, reaffirming its impact and success. Our annual EHG assessments and targeted capability building initiatives continue to help foster a more resilient, responsible, and sustainable value chain. I will now talk briefly about our Africa foray. Our progress is on track as major milestones have been achieved. We have now received regulatory approvals and operating licenses across all three target markets, Nigeria, Uganda, and Zambia. I am happy to share that we have secured orders from our anchor customer. Placed key supplier orders and initiated partner onboarding process for network operations. Rollouts are expected to commence in the next quarter and scale progressively across markets. We see an opportunity to create a strong foothold underpinned by our core strengths, high-quality service, delivery speed, reliable network operations, and cost-efficient infrastructure deployment. I would now request Vikas to take you through our financial performance for the quarter ended on June 30th, 2026, and I look forward to your questions. Thank you, and over to you, Vikas.

Thank you, Prachaur, and good afternoon, everyone. I am pleased to present our financial results for the quarter ended 30th, June 2026. The customer network expansion activity remained healthy during the quarter, supporting a steady financial performance and continued strong cash flow generation. Talking about the financial performance for quarter one of FI27, gross revenues grew by 4.6% year-on-year to Rs. 84.3 billion. Co-revenues from rental were up by 5.2% year-on-year to Rs. 53.7 billion, supported by addition of both towers and co-locations by our customers. A major customer continues to expand its footprint after resuming its network expansion in 2024. On a sequential basis, our reported gross revenues and core revenues grew by 4.1% and 1.2% respectively. A 9.5% quarter-on-quarter increase in energy revenue hated the gross revenue growth, driven by a seasonality-led increase in diesel consumption and increase in diesel prices. Moving on to profitability, reported EBITDA was up by 3.0% year-on-year and 1.2% quarter-on-quarter to Rs.45.2 billion. The EBITDA margin was lower by 1.5 percentage point year-on-year and 0.9 percentage point quarter-on-quarter at 53.6 percent in quarter one. Please note that in quarter one of FY26, there were write-backs of approximately 0.9 billion relating to collection of overdue receivables from a major customer. Adjusting for this, our EBITDA grew 5.2 percent year-on-year. Our energy margin was negative 4.6% in quarter one compared to negative 3.6% in quarter four and negative 4% in the corresponding quarter last year, primarily reflecting seasonal factors and the impact of past period settlements. Encouragingly, our diesel consumption reduced by over 13% year-on-year, supported by digital energy management initiatives, fuel monitoring systems, solar deployments, and lithium-ion batteries. We remain focused on improving energy efficiency and strengthening margins through continuous transformation of our energy management practices. Our profit after tax was up by 0.5% year-on-year and down by 2.7% course-on-quarter to Rs. 17.5 billion. Adjusted for the aforementioned one-offs, our profit after tax grew by 4.8% year-on-year. The sequential decline primarily reflects a lower tax charge in Q4 last year, resulting from year-end tax adjustments. Our return metrics remained healthy, with pre-tax return on capital employed of 25.4% and post-tax return on equity of 18.9% over the last 12 months. Free cash flow remained robust at Rs. 14.4 billion during the quarter, reflecting healthy operating performance and disciplined capital allocation. To summarize, we delivered a resilient financial performance during the quarter, supported by continued customer rollouts, disciplined cost management, and robust cash flow generation. We also made progress on our Africa expansion strategy and remained on track to commence rollouts within this calendar year. As supply chain conditions improve, we expect deployment activity to accelerate and support execution of our order book in the coming quarters. With that, I'll now hand it back to the moderator to open the floor for questions, please.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the test on the telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1. To ask the question, First question is from the line of Vivekanand Subramanian from Ambed Capital. Please go ahead.

Yeah, hi. Thank you for the opportunity. I have two questions. The first one is on the rental income growth versus the growth in co-locations. So, I see that whether one looks at it on a year-on-year basis or sequential basis, the rental income growth is mirroring co-locations growth. So, just to understand this better, there is a 2.5% escalation. I understand that there is revenue equalization accounting, but then you also have renewals that come up every year, which implies that the 2.5% escalation, even after revenue equalization, translates to some revenue group. So, I just want to understand from you. Why is it that the rental revenues are not going much faster than the co-location growth? That's question one. And, secondly, when it comes to your engagement with Airtel, you have many synergies, like one of them being the foray into Africa, the second one being the insourcing of towers by Airtel, and the third one, obviously, Airtel wanting to purchase more stake in your company. So, just trying to understand better on each of these three points, how Airtel is thinking and what are the markers here on. Thank you.

Thank you, Vivekananda, for the question. I think you're right. As far as the rental income is concerned, of course, the biggest source of growth is the expansion in the tower and co-location. You're correct that the next source of growth is the escalation that comes But what happens is... So first of all, the growth from escalation or the growth from, let's say, 5G loading, etc., are much smaller compared to the growth that is driven by the co-location and the tower additions. Two, I think there are basically drags within the revenue rental line in the form of, let's say, whenever we have renewals, we do have to give the discount on renewals as per the framework agreed. And also the fact that the revenue equalization, because the first set of bulk renewal had happened back in 2021-22 financial year. So a lot of them are actually reaching a point where the revenue equalization is also sort of dragging the growth a bit, because we are almost in the fifth, sixth year of those towers. So, everything put together, I think, broadly, what you see in the numbers is basically a growth number that is closely mimicking the tower and the co-location growth, and somewhere the escalation and loading-led growth are sort of offset by the revenue equalization as well as the renewal discounts.

Now, on the second question, if I understand the question correctly, you're saying is how is ATL Synergy's adding value? I mean, you mentioned a couple of points, so I'll probably just touch one or two on them. See, from an Africa perspective, where the value that is getting created is, as we are expanding in Africa, from day one, we have an anchor tenant. That fundamentally enables us to confidently expand, knowing that we have first tenant on the tower, which in other case we would have to look for a tenant. So I think that is enabling us, you know, start up much faster in Africa. And secondly, there's enough leverage in terms of the experience being present in Africa for us to be able to expand. So I think synergies, where it creates value for both, I think, are being looked at, and we are looking to see how we can maximize the advantage of those synergies. And similarly, you know, from an India Towers perspective, we have seen the growth that has happened over the last three, four years, where we have expanded at a, you know, significantly large pace in terms of a tower additions, which has also created opportunity for us to be present in a large part of India. Yeah, and have a room available for a second tenant as well. So I think that is how we are leveraging the synergies to create a maximum value for both Indus and our client company. That's the answer to the question. That's what I thought.

Sure. Just a couple of follow-ups. So, number one, there is some insourcing by Airtel, which is allowing you to add towers at a faster pace than the overall footprint, tower footprint expansion for Airtel. But I just want to understand if this is actually a very good strategy because if Airtel were to exit from a rival tower company, then surely the non-Airtel customers may also then look to exit or ask for more discounts than what you would already have been providing. Because like you said last time, the geo contract is still not renewed. So I'm just trying to understand this better. Is the insourcing really helping you? Because you may currently have a tower currently, which is, say, two tenancy or three tenancy. And for Airtel, when you, let's say, build a new tower, where it insources the network from one-party tower code to your company. Could there be a possibility that you may lose out on the second customer on an already existing tower where Etel is already present? That's what I'm trying to understand.

No, I'm not sure how would that lose a tenant because at the end of the day, for us, when we are adding towers, honestly speaking, we don't look at whether it is coming through an insourcing strategy or not. I think our strategy is very simple. If you have an order book from a customer, we execute. Now, the strategy belongs to the customer in terms of whether it's moving a tower or creating new tenancies. And I don't think there is a net loss of tenancy because of this strategy anywhere for us, and I think it's reflected in our numbers as well. I think if you look at the numbers that you've seen in the last few quarters, it's reflective of that, so I don't see a risk as far as that strategy is concerned at all.

Okay, sure, that's great. The last one which I was asking on Airtel was with respect to the state purchase that they were doing. I mean, are there any conditions or is there anything that you would like to discuss in that regard which will help us understand Airtel's intent with shareholding in Indus?

No, I think it's a discussion that you would have to have in the eight learnings call rather than with...

Because it's a shareholder matter, basically, it is absolutely their decision. There's no condition attached. So it's very difficult for the management to comment on this.

Okay. Thank you. Thank you.

Thank you. Next question is from the line of Manish Adukya from Goldman Sachs. Please go ahead.

Thank you. Hi. Good afternoon. Thank you for taking my questions. My first question, actually, is just a follow-on on Vivekan's question and also to your comment that part of your growth was driven by moving of the expired portfolio of one of your customers to Indus. I wanted to just understand it a bit better. Is that now largely done or basis whatever visibility you have that as a driver could still continue in the foreseeable future? If you can maybe just add some more color to that. Please, that's my first question.

Manish, I would not like to comment on the breakup of the growth itself. What I can say very clearly is for the next. For the foreseeable future of the next three, four quarters, we have a very strong order book, which is a combination of network expansion and moving of towers of tenancy. So I think all I can comment on is that we still have a very strong order book for the next three, four quarters. In the previous quarter, the initial part of the quarter was slightly impacted with the geopolitical situation where we fell because the tower manufacturing got impacted a little bit due to the LPG shortage, which has now been recovered. So I think we continue to have a very robust order book and we'll continue to expand, whether it's through network expansion or movement of towers, as the case may be.

Very clear. Thank you for answering that. Second question, again, just a quick clarification on your earlier comment on energy margins. So when you said that energy margins were partly also impacted due to past period settlements, can you again maybe explain that a bit better as to what do we mean by that?

Yeah, Manish, I think so that's basically the major impact is from seasonality, but So, there are basically certain settlements that do happen with a time lag. So, we have had, let's say, some settlements during the quarter which pertain to last financial year also. And as a result, there has been some impact, but these are basically much smaller. I think the bigger impact comes from the seasonality. Right.

And given the history in recent quarters and years, is it safe to assume that generally you will have...

Yeah, that's the nature of the business, because we basically end up consuming a lot of diesel during the 1H first half, simply because of very heavy monsoons and so on. So we do face a lot of weather disruption. Second half is usually better. So that's been the nature, and you will see that pretty much in most of the years. I mean, that's the phenomenon that we have been facing. But at the same time, I just want to sort of also highlight that, you know, while we do have these, you know, impacts coming from diesel, but the fact that we are also trying to transform our entire energy operation, focusing more on renewables as well as batteries and so on, I think that will help us reduce our dependency on diesel going forward in the forthcoming years. So from that perspective, I think we should be able to sort of mitigate a lot of these seasonality impacts. Maybe a few years down the line, but currently that's what it is.

Very clear. And maybe just last question on Africa, since you called out it now, rollouts would come in starting next quarter. Would you be able to provide any more color and visibility in terms of one, let's say from a 12-month perspective, what could the incremental tendencies from Africa look like? From a near-term perspective, at least, at a group level, could these Africa rollouts be margin and return dilutive, or do you have enough visibility on at least margins and returns being around where group-level margin returns are? That's my last question. Thank you.

So, I think, you know, I'll answer the first question, maybe it returns partly because you can comment on. I think as far as the numbers of tenancies and towers is concerned, I think I just want to say this is something that we'll start picking up in quarter two. And since we follow a practice of industry-leading disclosures, the numbers would come as it becomes material and you'll start seeing the disclosures happening accordingly. You want to comment on the margin?

See, Manish, I think as far as the financials are concerned, I think, first of all, let me just explain that. You know, we are still working through the MSA and the rate cards and all the commercial arrangements because, you know, one of the objectives for Indus to sort of be in that market is also to generate more efficiency and more value for all the operators and not just Seattle as an anchor, but for all the operators in the market. So while we are in that phase of discovering and finding those sources of efficiency and basically, you know, try and reduce both capex and opex costs per tower, I think, you know, as we sort of stabilize and as we become slightly more matured in that, I think that's when we will start sort of seeing more stability in our financials. So currently, it's a lot of moving numbers, and we are still discussing MSA and rate cards and all that stuff. So a bit of an early stage for us to comment on the financials and the returns. Maybe a few quarters down the line, we'll be more clear about it.

Got it. Just a clarification on that comment. As of right now, we are working with one anchor tenant, but do we in any of the three countries have any visibility from a 12-month perspective where we may also have a second tenant, or right now it's just too premature to have that visibility on maybe a potential second customer?

So I would not say one way or the other. I think what we are doing is as we are establishing our ground presence and we have an anchor customer, we are engaging with the other customers as well and creating a value proposition for them. And I'm sure as we expand, that opportunity will be there. So I cannot say whether it's going to be 12 months, 15 months or three months, but that's an opportunity that we have in mind as we expand the footprint.

Very clear. Thanks a lot. Thank you for asking my questions. All the best. Thank you.

Thank you. Next question is from the land of Arishabh from HSBC. Please go ahead. Rishabh, can I request you to unmute your line and proceed with your question?

Hi, sorry. Thanks for the opportunity. I appreciate all the clarity around Africa business, but since we are planning to roll out next quarter, even though we are not discussing the group-level impact, is there any indication on the unit economics, like what is the cost, expected capex per hour or expected leave rental per hour? Anything that we shared on those lines? And secondly, if we can discuss some, if we can have more color on the order book from India, like what proportion of incremental tenancies in last three, four quarters are actually coming from Vodafone idea? And how should one think about the order book going forward? Like, especially you and Vodafone idea are still working on the capital raise. So, any comments around that would be appreciated. Thank you.

So, I will first talk about the India part, and then maybe we'll touch base on Africa. So, on the India part, as we mentioned earlier, I think the order book remains strong, and you've seen the results that we have shown in Q1 rollout, where Q1 was slightly impacted by the tower manufacturing in the initial part due to the West Asia conflict, which has now been resolved. So, given that situation, you've seen the rollout that have happened in Q1. So, I personally think our, I mean, I know for a fact that our order book remains strong, and I think the momentum that we have seen in Q1 would be maintained or improved as we improve with our supplies. So, I think that's the visibility I can give you, that we have a strong order book for at least next three, four quarters that we have visibility on. And as it evolves, we'll keep you informed. The question in Africa, the unit economics. I think the unit economics of Africa, as I mentioned earlier, I think, listen, as we will follow the practice that we have followed here as well, that we will keep having, you know, quite a transparent disclosure on this one as we finalize things. As Vikas was mentioning, we are currently finalizing the terms of the MSA and everything. So let us have that visibility, and once we start rolling out, we will have clear disclosures on what the margins from Africa will be. So, as of now, I would like to comment on the numbers per se as such.

Thank you.

Thank you. Next question is from the line of Sachin Salgaokar from Bank of America. Please go ahead.

Hi, thank you for the opportunity. I have three questions. First question, just wanted to better understand, you know, the visibility on the order book, what you guys are having. Is it contingent on one of your customers raising capital or, you know, irrespective of whether capital is raised or not, there is a good visibility on order book? And, you know, the related question was clearly, you know, as Fraturi indicated, there were certain supply chain disruptions which happened at the start of the quarter. The geopolitical issues still continue. So are the supply chain issues largely behind us or, you know, we might see some impact of that in the future as well?

So, Sachin, I think the visibility of order book, I think as I mentioned earlier, I think the visibility of the order book that is firm for the next three to four quarters, and as I mentioned earlier, we have seen the orders coming through in Q1, and we have delivered that. So, I think that order book stability is there, irrespective of what the funding situation is. As far as supply chain issues are concerned, I think there was some... Thank you. The material available for delivering new towers. As per the order book. So I think the supply chain disruptions from a tower supply point of view is behind us. So I think that's what I think.

If I may just add some perspective on the order book, Sachin, I think broadly, I mean, we track the numbers very closely. And for all our customers, we basically also ensure that whatever their plans are, expansion plans are, we are able to garner the bulk of the market share from them. Thank you. That is what we keep tracking, and we have sort of successfully been doing that with, you know, bigger portion of the market share.

Got it. And a follow-up to that is, you know, tar additions were a bit slower in 1Q. Now that the supply chain disruptions are behind, we should see the tar addition normalized to your historical growth going ahead, right?

Again, I don't know to, you know, say, I don't know historical growth is relative or how far in history you're looking at. And I think, as I said, I think Q1 initially, April, I don't think Q1 full. Water was impacted. Initially, in April, we had some impact of the tower supplies, which is behind us. So I think the tower growth will be there as per the order book. Exact numbers, so I think we'll see how we deliver and monitor supplies. In Q2, typically, sometimes we are impacted in some states because of the monsoon situation as well due to water lagging, etc. So that may impact a few states in terms of their growth. So I think that number keeps fluctuating a little bit in terms of what is the on-ground situation. But from an order book perspective and the delivery, I think the order book is strong and we'll try to maximize the delivery in the coming quarter itself.

Got it. My second question is, you know, regarding your Africa, and while in three countries we get a sense that, you know, your MSAs are in place, any sense now in the kind of investments what are expected to be made out there? And this is also in sync. I presume these investments are relatively much smaller. So I presume, you know, we should expect a continued stable dividend payout framework, and it is unlikely to be impacted because of this entire Africa investment program, right?

So I think I would like to answer the dividend question first. I think as we have mentioned earlier, that the board is committed to distribute dividend and distribution of cash to the shareholders in one form or the other. So that will continue. I think Africa is a long-term strategy, and it is not one or the other. I think dividend is a separate track, and it is going to be – I think board is committed to distribute the FCF and it will not be impacted by the Africa expansion. So I think that's the one part. As far as the numbers of Africa is concerned, as I mentioned earlier, that as we start deploying and we will follow the practice of full disclosure as we've been doing in India, and you'll start getting a hang of the numbers very soon as far as Africa is concerned.

Thank you very much. My general request to come back for a follow-up question. Next question is from the line of Saurabhanda from Citigroup. Please go ahead.

Yeah, thank you for the opportunity. Two questions from me. Firstly, on exits, we've noticed that the trend, at least on a year-on-year basis, is largely stable at around. 300, 350. It's down QOQ. Could you talk a bit about this? I mean, I'm guessing this is business as usual, but given that with one of your tenants, you have previously spoken about tenancies coming up for renewal. Any further updates on the discussions on that front?

No, I think, in fact, if you see in this quarter, the performance was quite good. We have put some specific efforts as well in business as usual to reduce the churn by making sure we have proactive renewals and we stay engaged because typically we have a lot of operational churn that happens. So I think we maintain the operational rigors as usual. As far as the tenancies and renewals, it's a constant discussion with the customer, But we continue to maintain high-quality service, and we have not seen any major or disproportionate churn happening from any of the customers.

Okay, that's great. Thank you for the clarification. And the second question was actually just to follow up on one of the earlier questions on Africa. So you did say that the CapEx in Africa will not impact your free cash flow and distributions. So essentially, are you sort of clarifying that it would be the India free cash flow, which will be used for distributions to shareholders, and Africa CapEx will be? I mean, it could be debt-funded or whatever, but that will not influence your distributions in India.

Yeah, sort of. Let me clarify that. I think, first of all, As far as Africa is concerned, while we are not able to share any numbers at this state, but directionally, I think we are not really, in terms of, in the context of the capex that we spend in India, the numbers are not going to be very, very big, right? So, the initial years, one or two years, will have capex, which will be moderate from the overall India perspective. And second is, basically, even that capex and investment, we are actually anticipating largely debt-funded investments in Africa. So, to that extent, I think the India-free cash flow, we really don't expect Africa business to impact that much. You know, as far as the distribution policy is concerned, I think that cash will still be available, and we will see how the board decides going forward, but certainly there is a complete mindset of a steady and progressive dividend going forward as well.

That's very clear. Thank you so much. Thank you.

Thank you. Next question is from the land of Beneath Banka, from Namora. Please go ahead.

Yeah, hi, sir. Thank for the opportunity. I have a couple of questions. So, firstly, on the capex per tower, so if I divide the growth capex for this quarter with the number of towers added, the number which I get is around 39 lakhs per tower. And according to my understanding, the standard capex for typical tower will be around 20 to 25 lakhs. So, what explains this divergence between these two numbers? And the second question is, Do you have any sense of what percentage of Vodafone idea tenancies came to interest versus what it used to be historically?

So, Binit, on the first one, I just want to give a very high-level answer, and then maybe I'll request you to get in touch with us offline for more detailed understanding. But broadly, within our CAPEX, you know, there are various things. There are basically replacement and maintenance-related CAPEX. There is CAPEX on solar. There is CAPEX on batteries, and so on. So, simply dividing the total CAPEX number by the tower rollout will not be the right way of looking at it. We can walk you through the details, maybe offline, so that you know you have a better understanding of our CAPEX. Coming to VIL, I think, you know, we cannot disclose customer-wise information, but like I said, I mean, we are certainly very focused on garnering the bigger, you know, portion of the rollout plan, and to that extent, we have been successful so far. So, I don't really see any major issue as far as the market share is concerned.

And just more follow-up on VIL. So, there was a news around BSML and Vodapun idea.

I cannot comment on the speculation for such news. I think what I mentioned earlier and what Vikas reiterated, I think we are currently securing a larger share from all the customers that are rolling out, and I think we will continue to do that, and that remains our target and focus.

Thank you. Beneath, I'll request to come back for a follow-up question. Next question is from the Lionel Sanjay from ICICI Securities. Please, go ahead.

Thanks. Thanks for the opportunity. I've got a couple of them. First on the tenancy sharing ratio, we have been tracking it below the current tenancy sharing ratio. It's 1.37 in this quarter, which is not helping us to draw EBITDA faster. It's because of the relocation demand or the insourcing of ATL, and given the portfolio of the order we have for next three, four quarters, does it show a trend where we can actually improve the tenancy sharing ratio? That's number one. So, number two on the piece of rental, what we have spoken, that's not growing probably. Are we adding a lot of tower in rural, which may come at a lower price than the urban towers, considering the land rentals are very different? And number two, there is also additional tenancy sharing, which is happening there. The combination of portfolio is one of the reasons why we cannot see the entire 2.5% or the rental remaining flattish on a Y1 basis. That's number two. And number three, this battery capix, which we are doing to improve the energy efficiency or this entire effort of energy efficiency and the investment we are doing is largely to reduce the energy losses or considering in the fixed... Fuel pricing era, which we had earlier, where we used to make the margin. How does this CAPEX covers the ROC profile? These are the three questions.

To the first question. So, I think, to be honest, I would not look at tenancy ratio on a quarterly basis like that. I think it's a portfolio as it expands, and it is not an impact of either relocation or something. I think it's what the market is today, right? I think at the end of the day, we have to look at the macro picture of the industry and what the tenancy ratio drives it. If you look at the absolute tenancy ratio of industry today, it is still one of the leading tenancy ratio across the world from a portfolio perspective. And in a 3-4 customer market, I think there is a certain amount of tenancy ratio that is achievable. And we will continue to do that and do better than that.

So, Sanjish, I just wanted to add a perspective here. I mean, first of all, I think for the last two, three, four quarters, you are seeing that our co-location addition is outpacing the tower addition. As a result, our incremental tenancy ratio is in the range of 1.3, 1.4, thereabout. Maybe it is not close to the basic tenancy ratio of 1.6, but it is still very healthy compared to what we were seeing, let's say, two years back or even one and a half year back when VIL was not really adding too many tenancies or co-locations on our base, right? So from that perspective, I think it is an improvement. And two, we basically had explained this earlier also when we were rolling out a lot of towers that, you know, towers are a long-term infrastructure. They are basically a 20-year, 30-year cash flow business. So, rolling out towers, even with single tenancy in the beginning, really helps us create that runway where the second tenant or the third tenant can come in the future. So, from that perspective, I think it is clearly a growth path for us going forward. I would not really worry too much about the 1.37 for a couple of quarters. I mean, let's look at long term.

And how do you look like in the order book? The issues will continue to remain in this range?

See quarter to quarter. Yeah, we'll see quarter to quarter, but we do, like I said, we do expect the co-location additions to continue to outpace the cover additions going forward. Of course, this is subject to the capital infusion of one of the customers, which is VIL, but we do really see that, you know, that trend should continue.

It can be rental.

I think the second is about the ARPT or the rental per tower per tenancy. Now, Sanjay Shah have explained this in the past also. I think one is, you know, we really don't, you know, use that metric too much to judge growth. There are basically five, six moving parts which impact the ARPT. And, of course, as you rightly pointed out, the mix of the towers is clearly one of them. Now, obviously, the towers, the heavier structures that we used to build earlier, the legacy towers commanded a higher ARPT or rental. The different designs or the leaner designs that we are doing now commands a lower rental. So, to that extent, obviously, there is a mixed impact which basically offsets any uptick from the escalation and so on. So, I would suggest let's not read too much into this because there is a renewal discount, there is, you know, rural versus urban, there is, you know, different linear structures and so on, which impacts this. So, there's not just one thing. I mean, there are five, six things that really have a play here.

You know, from an even projection perspective, now that we are telling that our tenancy will outpace tower, that in a way tells that the ARPT will remain under pressure, right? Because additional tenancy will... Exactly, exactly, exactly.

Yeah, that's the way to think, right? Yeah, that's the way to think, but it is basically, we need to think about the operating leverage, because any additional tenancy gives us very heavy operating leverage, right? So that's the benefit that we are looking at.

No, no, that goes without saying. Just from a modeling perspective, now that we have a clear visibility in order book, that's the way to think, right, for the ERPT.

The third question was on the battery cap, right? So, let me explain the strategy a little bit so you can infer what it is. See, it is, you know, In energy, I think what the battery is supposed to do is to replace the diesel variable cost because diesel is not the right way to operate, whether it's ESG or whether it's financials, either ways, right? So what battery does is they actually kind of convert in the total scope scheme of things. We are converting an operating OPEX to a capex-based decision, which is a long-term, right? How the financial model works with the customer is eventually we get paid for diesel and we get paid for the battery. So I think that's how it is going to be. So from an industry perspective, I think the revenue would still be there. I think it's just going to come in a different form when it comes to batteries. So I think that was the question. So it is not a battery capacity at our cost. I think the customer would adequately compensate us for putting an infrastructure, and that is the nature of the infrastructure business.

Thank you. Sanjay shall request to come back for a follow-up question. Next question is from the line of Kunal Vora from BNP Paraba. Please go ahead.

Yeah. Firstly, can you update us on your diversification plans, if any, besides Africa business? In the past, you were exploring smart cities. In between, there have been news reports. You look at EV charging infrastructure, data centers, fiber, like, what are the two things have come out? But are you considering any diversification, or would you focus only on towers in India and Africa?

Yeah, I think we've explained this earlier as well. I think whatever POCs we did on that front, I think we made a decision that as of now, today, in front of us, Africa represents the largest opportunity outside India and outside the tower business of India, and that's what we're going to focus on. And then any opportunity that comes, which will create value, will keep you informed, as the case may be. But as of now, the focus remains to grow in India, both in towers, lean towers, IBS, in terms of putting the telecom infrastructure in the different buildings, metro stations, railways, I think. So those kind of remain our primary focus. And Africa, of course, is the tower expansion that we'll do. So that's what is on the table, and that's what we are focusing on.

Okay. Secondly, on Africa, what will be the pricing strategy? Are you offering discount versus established players in the market, and would you break you in if you have a single tenant, or are you assuming multiple tenants in your business case, which you can help us with some sense of your pricing?

Yeah, so I think I will not go into specifics, but in terms of the structure, how it works is, I think whether, you know, it is not always that we go to look at a market price and give a competition. It is a function of what is the cost per tower, what is the returns we want to generate, whether it's a single tenant, double tenant, triple tenant. So I think even for a single tenant, we have a return expectation from our investment, and that is going to be the strategy. So, we are not looking at a strategy which is based on what is in the market without looking at what the investment is. So, the solution is what we invest, what returns we want to command, and what value we can add to the customer by making a tower which is a reasonably cost tower, and so that even at a healthy return, we are better than the competition on what we can offer to our customers. So, that's the broad strategy. I would not comment on specific numbers, but that's the broad strategy that even at a single tenant, we expect a certain amount of returns from our investment.

So would you cover the cost of capital with a single tenant, or you will need a second tenant to cover the cost of capital?

So we will be covering the cost of capital even with single tenancy, and then as the second tenancy comes, obviously there will be the advantage of operating leverage.

Understood. Okay. That's it for me. Thank you. Thank you.

Thank you. Next question is from the line of Aditya Suresh from McQuarrie Group. Please go ahead.

Am I coming to tell you?

Aditya, your voice is not clear.

Okay, let me try again. So, Prashant, I had a question. You have spoken about multiple growth areas. Would it be at all possible to condense that down to like a revenue growth outlook over the next few years? Should we be thinking about similar, like, say, 5%? As what we've seen over the past three years, five years, or do you see an acceleration in that pace of growth? Any color there would be appreciated. That's one. The second is on your energy reimbursements. Here, the under-recovery has been, like, meaningful, right? So, like, this quarter, I appreciate seasonality comments, but it was 4.5% now. Last year, it was at 4. The previous year, it was at 5%. So, despite seasonality comments, it's not really, like, reversed. So, could you speak about that trend, too? Thanks.

Yeah, so, as I mentioned earlier, I think because we can't make any forward-looking numbers to you, I think what we can tell you is in terms of the order book, the order book remains robust for the next three to four quarters. That's the visibility I can give you on growth. And as we deliver every quarter, I think because the similar discussion happened in the previous quarter, as we deliver every quarter, we'll continue to establish that this robust order book is actually getting converted to delivery. And at any point of time where the order book weekends or we feel that there is a slowdown, we'll be the first ones to inform you. So as of now, I think the order book remains robust and we'll continue to deliver on that. The execution may get impacted because of monsoon or something here and there. Broadly speaking, I think the order book remains strong. As far as energy margin is concerned, as you yourself pointed out, I think the margin has been fluctuating a little bit. It saw an improvement this quarter. If you look at what Vikas had mentioned earlier, there is a slide. The deterioration compared to last year's first quarter, but as you mentioned, as the year improves, as the weather improves, we will eventually recover some of the deterioration that we have seen on count of seasonality and the settlements that we have done over last year. So I think that's where we are. I think it's something that we are constantly looking at improving. We have made significant progress as far as diesel cost reduction is concerned. But as I told you that the long-term strategy that we have undertaken now to fundamentally eliminate diesel from the ecosystem, but that will take a little bit of time because that fundamentally requires to redesign our sites and deploy those solutions at the sites. So over the next few years, you will see a significant traction coming through on that one that will fundamentally improve the site performance. So that's what I can comment as far as energy margin is concerned.

The line for the participant dropped. We move on to the next participant. Next question is from the line of Arun Prasad. From Vendus Park, please go ahead.

Thank you for the opportunity. My basic question is on our maintenance costs. Some of which are capitalizing, some of which is appearing in the P&L. Can you just clarify what is capitalizing, what is immediately expensed during the quarter?

So, basically, this is done as per the accounting standard, Zarun. For example, any battery or diesel generator that gets replaced at the end of life is a capex for us. But as per the accounting standard, if there are, let's say, tower maintenance expenses, Which are in normal course of business, like maybe replacing a few nuts and bolts here and there, or carrying out some maintenance activity on the ground, then those are basically normal business as usual maintenance activities, and hence they are expensed out. So, we follow the accounting standards here.

Right. So, the last five quarters, if you see the maintenance capex, that got doubled. Arun, sorry to interrupt.

Can you speak a little louder, please?

Yeah, sure. Hopefully, now it is better. So, what I was asking is, as a follow-up to the first question, is that in the last five quarters, our interference CAPEX has done a quarterly basis from roughly 250 crores to now around 500 plus crores. So, this is mainly to replace DGs and batteries. And at some point of time, this should stop and divert back to 250 crores. Is the right understanding?

Yes, Arun. So, if you recall, some time back, we did mention about our strategy to migrate or transition from the lead-acid batteries to lithium-ion batteries, or to basically more new-age batteries. So, as a result of that strategy, I think there is a very large base of lead-acid batteries that we use. So, I think somewhere those replacements are showing up in the 500 crore number that you were talking about. I think that transition journey will continue for some time, and after some time, we should see a moderation. We really can't tell you numbers, but directionally, we should see a moderation.

And I think one thing to note is, these lithium-ion batteries have a different life cycle. Compared to the lead-acid battery. So while the efferent capex may seem a little bit higher, however over the period of the life of the battery being longer, the overall TCO and the capex also will eventually reduce. Because it will take a larger time frame to reduce a lithium ion battery than a lead-acid battery would do.

Are we at least done with the half-spit or just the beginning of the...

I think it's a longer-term strategy. We have a very large portfolio, but we are not doing and we are taking precaution in terms of not replacing any battery, which is not due to be replaced. It's a replacement cycle that is being followed. So, I think if you look at our portfolio of 260,000 towers plus another 20,000 lean towers, that's a significant portfolio. So, the journey will take a little bit of time, but it is the strategy that we are going to stick to.

Thank you very much. Ladies and gentlemen, due to time constraint, we'll take that as a last question. I'll now head to conference. Vote Mr. Fletcher Saab for closing comments.

Thank you. So I believe that the company is strongly positioned to capitalize on the ongoing digital infrastructure expansion in India and large growth opportunities in Africa. Our ongoing investments across technology, sustainability, and customer service are strengthening our competitive position and creating a foundation for long-term growth and value creation. Before I close, I would like to thank Vikas, our CFO, for his outstanding leadership and lasting impact on industry hours. Under his guidance, Indus Tawas achieved significant milestones in terms of how we perform financially and delivering better results for the shareholders. We are deeply grateful for his contribution and wish him very best for the future.

So, thank you. Thank you, Prachur. I take this opportunity to express my sincere gratitude to all of you for your support and engagement over the last five years. I've truly enjoyed our interactions across various forums, and I'm grateful for the insights and perspectives you have shared along the way. My stint at Indus Towers has been quite fulfilling, and your continued interest in the company has been an important part of the journey. So thank you once again, and I wish you all the best for the future.

Thank you. Thank you very much. Thank you, members of the management. On behalf of Indus Towers Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your nights. Thank you.