Indus Towers Limited (INDUSTOWER) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Sunita, the moderator for this conference. Welcome to the Indus Towers Limited Third Quarter Ended December 31, 2024 Earnings Call [Operator Instructions]. In case of a natural disaster, the conference call will be terminated post an announcement. Present with us on the call today is the senior leadership team of Indus Towers. Before I hand over the call, I must remind you that the overview and discussion 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 today, Mr. Prachur Sah. Thank you. And over to you, Mr. Sah.

Thank you, Sunita, and a very warm welcome to all participants. Joining me today are my colleagues, Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; and Mr. Dheeraj Agarwal, Head of Investor Relations. I am pleased to present our business performance for the quarter ended December 31, 2024. [Technical Difficulty] As held by Vodafone Plc. Before I delve deeper into major business developments, I would like to take a moment to acknowledge the dedication and perseverance of our teams on the ground who faced harsh conditions and worked around the clock to ensure seamless connectivity. During the quarter, we installed towers in some of the most geographically challenging locations in the country, including Leh, Ladakh and Samana as well as Mechuka and Etalin in Arunachal Pradesh. The efforts of the field team are praiseworthy, which help in digital inclusion of people in these locations. Moving to the regulatory landscape. The government continues to take steps to help accelerate the rollout of telecom infrastructure in the country while being cognizant of the environmental aspect. The recently announced Right of Way Rules 2024 have been implemented from 1st January 2025 and have to be mandatory followed by the states. The rules aim to resolve interpretational issues within the industry and ensure efficient deployment of telecom infrastructure amongst other. The center is coordinating with all stakeholders, including state governments and industry bodies to provide support for resolution of initial teething issues. Additionally, the Green Energy Open Access policy has been notified in almost 24 states, which will be a key enabler, not only for driving use of renewable energy but also making the energy consumption more efficient. The composite billing scheme introduced a few quarters back has now been implemented in 11 states, including the likes of Rajasthan, Madhya Pradesh and Maharashtra. The scheme can optimize the overall billing process by combining the bills from multiple connections and easing the handling of hundreds and thousands of bills. Moving on to 5G. The industry-wide total number of 5G BTS deployed stands at almost 465,000, with over 50,000 BTS being deployed in the last calendar year. Though the pace of deployment has slowed down, 5G loading contributes meaningfully to the overall loading revenue. We expect the 5G loading revenues to be gradually supplemented by a demand for new sites once a certain penetration level is achieved to aid the network teething issues. Given our expertise in the passive infrastructure space, we believe that we are well placed to capitalize on these opportunities. Swift deployment of 5G infrastructure is expected to be complemented by a rapid uptake of 5G by the end consumer as well as per statistics mentioned in the Ericsson Mobility Report. As per the report, global 5G subscriptions are expected to reach over 6.3 billion by 2030, accounting for around 67% of the total subscriptions. During the September quarter, global 5G subscriptions grew by 163 million to a total of 2.1 billion, with 4G subscriptions falling by 69 million. In India, 5G subscriptions are expected to reach around 970 million by the end of 2030, accounting for 72% of mobile subscriptions. As per the latest TRAI report, total 5G subscription base in India grew to 218 million at the end of Q2 FY '25, increasing by 28 million quarter-on-quarter. Comparatively, 4G subscription saw a decline of 29 million. Data consumption in the company remains robust, aided by the rapid uptake of 5G and the continued upgrade from 2G to 4G. The average data consumed per user per month across the top 3 operators grew 13% year-on-year to 26.6 GB for the quarter ended September 2024, with the total data consumed growing 21% year-on-year. Additionally, as per TRAI, 5G data consumption grew 12% quarter-on-quarter to 12.8 billion GB and contributed to 22.7% of total data usage in Q2 FY '25 compared to 20.3% in Q1 FY '25. With the rising data consumption and the rapid integration of 5G, the demand for passive telecom infrastructure is expected to rise continuously to add more capacity, and we possess the capability to effectively cater to this increasing demand. Now moving to operational performance. We recorded a robust tower and tenancy additions in Q3. During the quarter, we added 4,985 macro towers and 7,583 corresponding co-locations. The total macro towers and co-locations base grew by 10.8% and 7.2% each year-on-year, standing at 234,643 and 386,819, respectively. A significant number of tenancy additions during the quarter helped our industry-leading tenancy ratio to remain stable at 1.65, which has been declining for many quarters. Addition of co-locations on leaner towers stood at 132 in Q3, and the overall base increased to 11,492 co-location. Including leaner towers, our net co-location additions were at 7,715 in Q3 versus 4,490 in Q2. Following on from our operational performance, I would now like to provide an update on the progress we have made in each of our 4 key strategic priorities, namely market share, cost efficiency, network uptime and sustainability. Regarding market share, we are proud to have maintained a dominant share in the business of our major customers. This has been underpinned by the digital interventions we have been taking across the value chain and continued strengthening of our partner ecosystem, which has resulted in a reduction in turnaround time for a tower site. Our effective employee incentive and recognition programs, along with regular review mechanism, are also critical to our performance. Our in-building solutions, IBS portfolio, continued to witness good traction, and we are pleased to have recorded the highest quarterly IBS deployment in our history. We expect this momentum to continue as we continue to work towards strengthening our IBS portfolio. The resumption of the network expansion by a major customer bodes well for us. Similar to Q3, we believe that we are well placed to capture a meaningful share of its tenancy additions in the coming quarters as well. Secondly, on operational and cost efficiency, we are working on optimizing both operating and capital expenses. Energy accounts for a sizable amount of our OpEx, and diesel cost makes up a large part of it. Our ongoing initiatives, including electrification of nonelectrified sites and deployment of energy storage solutions, have yielded an 8% year-on-year reduction in diesel consumption in quarter ending Q3. We also continue to focus on increasing the share of renewable sources of energy, with our solar sites growing to over 28,000. We continue to optimize our rental cost through product design and negotiation strategy based on benchmarking, prioritization of sites and landlord segmentation. To leverage our network cost, we are working on improving the productivity of technicians through benchmarking and optimizing their scope of work through the use of digital interventions. On CapEx, we continue to transition our battery portfolio to lithium-ion batteries, which have a lower charging time and a longer life, thus providing both operating and cost efficiencies. Similarly, our tower portfolio also pivoting towards an increased share of lighter tower variant, which has helped us reduce our civil and product costs. Thirdly, on network uptime, which is a very critical -- which is very critical for our customers and us. We continue to maintain a very high uptime and delivered an uptime of 99.98% in Q3 FY '25 compared to 99.96% in Q2. Please note that the quarter was marked by severe natural calamities, such as Dana cyclone in Odisha and heavy rains and thunderstorms in areas of Rajasthan and Punjab amongst others. Despite these challenges, our field force ensured a high level of uptime. On the front of sustainability, which remains a key priority of organization, our initiatives towards reducing the GHG emissions continue to reap [ benefits ]. We continue to work towards reducing our dependency on fossil fuels for energy needs by transitioning to renewable sources of energy. Our solar portfolio stands at over 28,000 at the end of Q3. In order to expand renewable energy portfolio, we have entered into a power purchase agreement with a strategic partner for procurement of renewable energy from a 130-megawatt solar plant under captive mode. As part of the agreement, we would acquire 26% of the equity shares of the said entity for a consideration of around INR 38 crores. ’The sustainability practices of our partners are also important to us, and we conducted ESG training of close to 100 major partners during the quarter. We also continue to work towards increasing the usage of EV vehicles for business travel. We were happy to see our efforts in the environment domain recognized, being bestowed with the Great Indian Sustainable Performance in Energy Efficiency Award by Transformance. In our workforce, our gender diversity stood at 14.2% in Q3 FY '25, compared to 11.3% in the corresponding period last year. We continue to make efforts towards improving gender diversity across the value chain, and to this end, we launched [ our success ] program during the quarter. The program focuses on mutual sharing of proven strategies, best practices and success stories with the partners to drive progress. On the CSR front, we carried out relief activities related to floods in Bihar, supporting over 2,000 lives. We were pleased to see our social initiative being recognized by multiple bodies. In Q3, we won the Mahatma Award 2024 for CSR Excellence and the Gold Award under social initiative category at Bharti Changemakers Awards 2024. The quarter witnessed landmark decisions from the Honorable Supreme Court and Delhi High Court for resolution of the long pending tax matters of the industry. I believe that the decisions are progressive and will support the investment in the sector. I will have Vikas share more details on this. I would now request Vikas to take you through our financial performance for the quarter ended December 31, 2024, and I look forward to your questions. Over to you, Vikas. Thank you.

Thank you, Prachur, and good afternoon, everyone. I'm pleased to share with you all the financial results for the quarter ended 31 December 2024. We are pleased to report a strong financial performance for the quarter, underpinned by substantial tower and co-location additions. Our financial performance was further supplemented by the clearance of a substantial part of overdues from a major customer. In quarter 3, total revenues grew by 4.8% year-on-year to INR 75.5 billion while the core revenues from rental grew by 7.5% year-on-year to INR 48.2 billion, driven by strong tower and co-location additions. On a quarter-on-quarter basis, our reported gross revenue and core revenue from rental increased by 1.1% and 2.3%, respectively. In terms of profitability, EBITDA stood at INR 70 billion, growing 93% year-on-year and 43% quarter-on-quarter. EBITDA margin increased by 42.4 percentage points year-on-year and 27 percentage points quarter-on-quarter to 92.7%. Please note that during the quarter, we collected INR 19.1 billion for monetization of the secondary pledge on the shares held by Vodafone Plc in Indus Towers. We also recovered an additional amount against the overdues from a major customer. This resulted in an overall write-back of provision for doubtful debt of INR 30.2 billion, reducing our provision for doubtful debt to about INR 5 billion. The write-back helped our overall profits, and adjusted for the same, EBITDA increased by 8.3% year-on-year and 3.7% quarter-on-quarter. Our energy margins were at minus 3.4% in quarter 3 compared to minus 4.8% in quarter 2. We are taking many initiatives to improve our energy margins, which includes reducing our diesel consumption and increasing the share of renewable energy to benefit from the lower cost. Tying up with strategic partners under Green Energy Open Access and deploying solar sites are expected to optimize our overall energy cost. Our finance income increased quarter-on-quarter to INR 2.1 billion on account of interest collection from a major customer on its overdues. Our income tax had a benefit of INR 1.4 billion from reversal of provisions following a favorable judgment from income tax appellate tribunal pertaining to past period. Our profit after tax grew by 160% year-on-year and 80% quarter-on-quarter to INR 40 billion. Adjusted for provision write-backs, our profit after tax increased by 7.7% year-on-year and 9.6% quarter-on-quarter. The reported pretax return on capital employed and posttax return on equity for the rolling 12 months stood at 29.3% and 34.8%, respectively. We generated free cash flow of INR 26.6 billion in quarter 3, underpinned by higher collections. Trade receivables increased INR 16.9 billion, primarily due to the significant provision reversal against which the amount was collected subsequently in this month. During the quarter, the Honorable Supreme Court, in a landmark ruling, allowed CENVAT credit on towers and shelters, resulting in a reduction of INR 37 billion in our contingent liability. Following the Honorable Supreme Court ruling, the Delhi High Court [ coursed ] the show-cause notice issued by the DGGI on the issue of disallowance of input tax credit availed by the company on passive infrastructure and towers. This resulted in reduction of INR 62 billion in our noncontingent liability. To sum up, we are pleased to have delivered a robust financial performance during the quarter, underpinned by substantial tower and co-location additions. The collection of a significant amount against the overdues of a major customer was another material positive and bodes well for the clearance of the balance amount. Looking ahead, we expect the ongoing network expansion of our customers to act as a key pillar of our growth. I would now request the moderator to open the floor for question and answers, please. Thank you.

[Operator Instructions] The first question comes from Mr. Kunal from BNP Mumbai.

Congrats for a strong quarter. First is your co-location addition this time was much higher versus tower addition. It looks like you're getting new business from Vodafone Idea. So I wanted to get a sense on how is the pipeline looking at both from Airtel and Indus. I know you won't be able to specific details, but if you can just talk about how is the pipeline looking.

No. Thanks, Kunal. I think -- yes, I think your observation is correct. This was a strong quarter in both tower and co-location additions. I think our order book remains quite strong, both on towers and co-locations from all the customers. So I think we expect the growth to remain robust for the foreseeable future.

What's the kind of visibility which you have right now?

You're -- I mean if you are looking at a time frame, I think we're looking at a time frame of visibility of the next 3 to 4 quarters. That's what we have today.

Okay. That's helpful. And second is what's the kind of investment you are looking to make in the EV charging infrastructure? Like a few years back, you were investing in smart cities. Eventually, it [ settled out ]. So how different is this opportunity, if you can just give us your sense on what you're looking at here?

Yes, I think -- Kunal, I think, EV and smart city are very different, and it was a government-driven initiative. So I think the smart city was a government-driven initiative. From an EV business point of view, it's too early to say on the investment. It's a very early-stage discussion that we are currently looking at. We are planning to look at -- capitalize on our core strengths of managing space, power and O&M. And as we expand our discussions with the potential customers on a case-to-case basis, we will make the decision accordingly. So I think it's a bit early to say any numbers in that side.

But if you can just give some sense on like what is your right to win, how many sites might have any potential, what's the kind of competition, which is also working on this? Like you don't like own the land, so how would the deal with landlords sort out? Whatever you can provide on this.

Yes. So again, as I said, I think from a land acquisition perspective, quite similar to what we do in the tower space, right? I think the model for space and power is quite similar to what we do for towers. Maybe some dimensioning is a bit different. And our right to win probably comes from the ability to manage and deliver the sites and provide a large uptime for the charges, which need to stay up when they are on the streets. So our O&M practices, operation center will give us the right to win. So I think that's the broad thinking on which we have started doing some pilots. And as we progress, we will understand how big this opportunity can be for us, and we'll keep you posted.

By when do you think we can hear more about this?

Again, I said, Kunal, it's very early stages. I mean I can't give you a time frame. I think it's something that we have started just now. So I think as things progress, we will come to know.

The next question comes from Mr. Manish Adukia from Goldman Sachs Mumbai.

[indiscernible] Kunal's question. Now when you talk about the new customer, Vodafone Idea, which you said have started rolling out, and you have a good share of those rollouts, can you give us a sense of what your market share with Vodafone Idea has been in the new rollout? And is that broadly similar to the market share you have with your #1 customer, Bharti Airtel? And is it safe to assume that majority of the rollout and the visibility that you talked about for the next few quarters for Vodafone Idea, that is largely going to be on existing towers? And for Vodafone Idea, in particular, you don't necessarily have to roll out new towers, so that -- they should largely come with -- come in the form of tenancies. That's my first question, please.

Thanks for the question. Again, rather than giving you a specific number of the share, what I can say is if you've seen the rollouts that we have done over the last couple of years, that has put us in a prime position to have towers available for a second tenant. So I think that is a broad strategy that works out. And I think hence, we are in a pole position to be able to monetize those towers, which are currently single tenant, right? And when I was talking about the next 3, 4 quarters, it was not just VIL. I was talking about the overall market in terms of pipeline that we have. As far as building new towers for VIL or any other customer, I think it will depend on their planning and network expansion. I think while we'll not pick and choose, but I'm very confident that with the footprint now that we have for our [indiscernible] towers, we can largely capitalize on them coming as a second tenant, but we will make that their network expansion plans are met one way or the other.

Got it. Helpful. And just a second quick bookkeeping question. So after the collections from Vodafone Idea in the quarter of about INR 30 billion-odd in form of past dues, I know that the outstanding provision amounted about INR 5 billion or thereabouts. Is that all that is remaining now as far as past dues are concerned from Vodafone Idea? Or is there anything else on top of that as well?

Yes, Manish, just to clarify, the INR 30 billion is the provision write-back. Like I had mentioned in my commentary, a large chunk of that has been collected subsequently. But because we had the security with us, we recognized the provision write-back in quarter 3 itself. As far as the INR 5 billion is concerned, I just want to clarify, this INR 5 billion is the provision for doubtful debts that's remaining after the write-back. Now just to give you a bit of history, we had provided, 2 years back, some of the overdues to sort of derisk our balance sheet. And as and when we are collecting those overdues, we are writing back the provision. So the INR 5 billion is what is remaining. Obviously, the overall outstanding is more than that because as we have explained in the past, we have been providing for the overdues, which were beyond the credit period and already matured. So the outstanding is not INR 5 billion. The outstanding -- overall outstanding within the credit period plus the overdue is bigger than that.

The next question comes from Mr. Vivekanand from AMBIT Capital Mumbai.

So the first question that I have is on the capacity. So in any given quarter, what is the maximum number of co-locations that you are capable of rolling out? And is that going to be a constraint at all if Voda Idea decides to aggressively expand population coverage like it has suggested? And is there a theoretical limit in terms of, let's say, 20,000, 30,000 co-locations per quarter that your field force is capable of deploying? That's one. Secondly, as far as the balance sheet is concerned, I see that your debt excluding lease liabilities is down to only INR 1,000 crores. Now that you are collecting money on time from Vodafone as well as the company is clearing past dues with you, when can we expect the balance sheet to get more optimized and leverage to come back so that investors get amplification of returns like they do with other global tower companies?

So let me answer the first question, and then I'll ask Vikas to answer the second question. So from a capability of co-location deployment, see, once you deploy a 1P tower, co-location deployment is actually very straightforward. So from a technical limit point of view, I think there will be no limit from our side in terms of co-location deployment. Our turnaround time and our spread of the field force is enough that we can meet all the requirements of co-location orders that come from the customer, right? So I think from a co-location deployment point of view, the technical limit of execution is not much of a constraint. I think as long as we have the first tenant available and the tower is there, co-location deployment is quite quick. And it is not limited in terms of -- because we have field force managing the towers that are operating anyways. So I think -- so that is not a constraint from our side. So I'll ask Vikas to answer the second.

Yes, sure. So Vivekanand, I think as far as the debt is concerned, clearly, there is a reduction in this quarter, quarter 3. And that's a function of a good cash flow that we've generated in this quarter as a result of better collections as well as our CapEx has -- CapEx cash flow has been lower. And as part of our normal cash management, we have sort of repaid some of our short-term loans, et cetera, et cetera, right? So I don't see this, first of all, as a very long-term situation. This is basically just part of our normal cash management. Coming to the long-term view on how the balance sheet can be optimized. Clearly, we know that there is a lot of headroom. In the past, as I've explained why we were not very keen about increasing debt levels was because there was a lot of uncertainty that we are facing. Now with the uncertainty reducing, I think, clearly, there will be more appetite. As we go along, there will be capital allocation decisions, et cetera, that will be made in the next couple of months and quarters, and that will probably improve the leverage situation and the balance sheet optimization. So I think give us a couple of months and quarters, and then we will see how this goes. But currently, we are just sort of coming out of a very uncertain phase with a very good collection in the Q3, Q4, sort of a time period.

The next question comes from Mr. Sumangal Nevatia from Kotak Securities Mumbai.

My first question is on our new venture for EV charging. I appreciate it's very early stage, but just want to understand from a capital allocation point of view, what sort of hurdle rate do we look at when we evaluate and decide to pilot and then maybe eventually sign contracts on this business?

So again, and to be honest, hurdle rate, I think -- I mean, I think once we are looking at the projects on a case-to-case basis, we are evaluating that. But I think the hurdle rate is going to be in line with what our overall business is.

Yes. Again, Sumangal, I think I just want to probably add to what Prachur said. I think broadly, we have made this announcement. It's early stage. Obviously, we are aspiring for, let's say, mid to maybe somewhere in the double digits, right? So mid- to high sort of double-digit returns. But currently, the business scale is very small to really talk about returns because currently, we need to, first, develop this business and see where it goes and see the competitive situation in the market and so on. But obviously, aspirationally, the returns would be -- are expected to be double digit.

Understand. And since you're kind of doing some sort of pilot, do we have any sense on the TAM of this business? Any external agencies we would have deployed before we, I mean, get into this business?

So I think, as I said, I think very early stage. I think we are learning as we are doing. I think there are certain parts of pilot but primarily focused on technical feasibility and our abilities to deploy. So I think, again, as I said, as we go forward, we'll learn more.

Got it. Got it. One small clarification. I don't know if this is discussed. I got disconnected. On the dividend, I mean, since we are now coming out of the bad phase and all the debt provisions -- bad debt provisions are largely behind, what should we expect with respect to dividend payout? Do we expect to get back to old ways, paying out almost all of free cash flow eventually?

Yes. I think the cash flow situation certainly has improved significantly compared to what we were seeing in the past. So with this sort of visibility, we will certainly evaluate the whole situation at the year-end, which is just 2, 3 months away. And I'm sure the Board will then take a call on the dividend also. We are fully aware that no dividend has been paid in the last 2 years, although we did a buyback in quarter 2 and distributed some cash. But clearly, by year-end, if we are still in a very strong cash flow situation, I'm sure the Board will evaluate all this.

The next question comes from Mr. Sanjesh Jain from ICICI Securities Mumbai.

A couple of them are bookkeeping question. I will start with them. First, on the provision reversal. Your note to account says that this quarter had a provision reversal of the collection of INR 29 billion. In your opening statement, you suggested INR 30.2 billion. So what is the difference between the 2? So I am referring to notes to account.

Yes, Sanjesh. So it's basically -- the INR 29 billion is the provision reversal on account of the monetization of security and also some of the past collection. And apart from that, there has been some other adjustment also. So the INR 29.6 billion that you see in the notes to accounts relates to one customer and a specific transaction. But in the overall books, the provision reversal has been INR 30 billion or thereabout. Since there are other TDS-related adjustments and so on, so the total number is INR 30 billion. So that's the small difference that we are explaining.

Got it. That's clear. Second, on the trade receivables. If I look at quarter-on-quarter, trade receivable has gone from INR 56 billion in last quarter end to INR 73 billion in this quarter. What has led to the sharp increase in the trade receivables?

So in the accounting books, as we write back the provision -- because the balance sheet shows the receivables net of provisions. So as we write back the provisions, that goes and sits in the trade receivables.

Money was received in January. Hence, the...

That's right. That's right. It's just a timing issue.

That's a timing issue. No, that's very clear now. The next question is on the CapEx. We had one of the highest tenancy addition, and the CapEx number was quite muted. What explains this CapEx?

No, it's just the sort of procurement sort of a time frame. The -- obviously, the procurement for the rollout that we have done were much earlier. And then there is also the adjustment on account of the Supreme Court ruling, wherein we are now able to avail the CENVAT credit on towers. And to that extent, we have also reversed some capitalization to the extent of INR 6.6 billion that we have explained in the notes.

Got it. Got it. And just a follow-up question on the tenancy addition. I don't know if you can help us understand or asserting, what is your existing run rate market share in the Vodafone's rollout? On the market share we had earlier, if not the number.

Yes, I think as I said in my statement, I think we are currently the dominant market share player for all our customers that are rolling out. And I think we'll continue to do so.

Yes, I know we have a dominant market share. Are we also have a dominant incremental market share?

Yes.

Clear, clear. That's very clear. One last question on the EV infrastructure business. The tower business was quite straightforward for us. We used to get order, and based on the orders, we used to put the tenancy or tower. But in case of EV, we need to choose the location and then look for a potential business out of it. Do we -- are we building the expertise? Are we building a different business unit for it? Because though on the face of it, the business moat looks same, but the business economics are very different. Will it run -- will it be run by a separate team as a different team?

Yes. See, again, I think since there have been a few questions, I'd like to clarify. See, our primary driver of the business remains the tower business. And I think EV is early stage. Of course, we will maintain that difference so that the tower business does not suffer. So I think it's a separate business unit, separate team that is going to drive the business. And as you mentioned earlier, I think there are certain things which are different, especially on the market side. That is why our selection of contracts or the deals that we make with customers will be very prudent in terms of making sure that we are close to the business model that we are doing with towers. I think it is something that will be new to the industry as well. So we will very cautious on that one. But it's a separate business, yes.

Got it. And also, sir, you mentioned that you had one of the highest IBS addition in this quarter. Can you help us understand how big has it become? What is the opportunity? Are we looking at it? Along with that, can you also help us understand the effort what we are doing towards build the micro cell towers. Where are we in that ecosystem now? I know we do mention the leaner towers, but are they same as micro towers?

So let me first answer the IBS question. I think like I mentioned in my speech, IBS for -- last year, we have focused a lot on our tower addition. This year, we put a specific effort on making sure that our team, our ways of working, our processes and even the technology that we are deploying in IBS that now includes 5G, right? We put a robust team and drive behind it, and that has resulted in a very strong uptake and our ability to acquire sites for IBS, even in larger cities. So I think that has been the reason behind the IBS uptake. And I think that has proven to our customers that we can deliver. So we are aggressively present in this space and will continue to expand. As far as the micro cells and the lean sites are concerned, I think -- Tejinder can correct, but it's a little bit of a customized solution based on what the customer is asking for any given site. And I think we have the capability to provide those customized solutions as the requirement comes.

Yes, pretty much right, Prachur, as you said. There are solutions required for the customer need. It could be the small, 3-meter and 6-meter, 9-meter kind of old structures or the single -- 1 sector, 2 sector. Depending upon their coverage requirements, that's how the micro cell structures are built up. But pretty much we have the solutions to cater to all the needs.

Got it. Got it. That's pretty much clear now. On the loss we are making on the energy, that continues to remain sticky, though the diesel proportion has been coming down and the renewable proportion is going up, but the percentage loss has been sticky. Can we expect some reduction starting FY '26 as a percentage of energy margin losses?

Yes, I think that's a good question. I think -- see, if you see quarter-to-quarter, there is some improvement. And I think there's a lot of effort being -- going there. The reason sometimes you do not see the impact of, let's say, the solar sites or something coming in because it's a different revenue model. So the solar revenue gets captured as service revenue, not in the energy. So you may not see that impacting the energy margin per se, but it is there in service revenue. So if you bring that here, the margin definitely improves. So I think overall, on the energy side, while I think there is still a lot of work to be done, some of them always remains a timing issue in terms of how the energy margin looks like. But I believe as we move forward, as we put in more and more efforts on renewable, I think these numbers will continue to improve.

I got one last question on the rental per tenant, which has grown 0.7% sequentially, while our tenancy sharing has been improving, which should have ideally led to some dilution in the rental per tenant as the tenancy sharing goes up. Was it a timing issue and that should start showing up from? Or do you think the loading will still be driving this rental per tenant going up even in the ensuing quarters?

So Sanjesh, let me explain this. I mean while as far as the ARPT metric is concerned, like we have explained in the past also, there are several variables and moving parts that impact this metric. But particularly referring to quarter 3 movement over last quarter, that's largely -- there is another element, which is basically the seasonality, right? So Q3, Q4 generally are seasonally good quarters for Indus Towers in terms of whether the electricity availability, et cetera, et cetera. So we have better uptime, lower diesel costs and so on. And sometimes, better uptime also translates into sort of better ARPT. So particularly for this quarter, while there are other moving parts also, but the single biggest factor is also the fact that there is a seasonality benefit.

Got it. Got it. But structurally, as the tenancy sharing goes up, the ARPT should slightly come down, right?

Yes, to some extent, you're right because there is always a tenancy discount that kicks in. So ARPT logically should come down. But like I said, we cannot attribute the movement in ARPT to single factor. There are mix of towers. There is tenancy. There is a renewal discount. There is loading. There is 5G. There is seasonality. So there are several factors. So something or the other keeps playing in this little movement that we see every quarter.

Got it. Got it. One, probably, last question. In the opening remarks, you said that now the loading is catching up and we are nearing the 5G tenancy rollout, in how many quarters do you think you'll start seeing the 5G stand-alone tenancy being rolled out by the operators?

To be honest, I can't answer that question right now. I think let's see how the proliferation of 5G is, and then we'll come back. It's too early to say if you're going to see something like that happening soon.

And this is something that is driven by the data uptake at the operator and then how they want to cater to that data need. So I think it's a little not easy to kind of predict when the 5G stand-alone things will be coming in. But the rollout 5G, in any case, has also slowed down a little bit.

Got it. But [indiscernible] in terms of adding more tenancy? Or you don't see that happening?

Can you repeat? Sorry, I missed that.

Will the FWA rollout by Airtel, will that help in adding more tenancies?

No, I think the 5G coverage will cover that part. I think -- I don't...

FWA has got nothing to do with tenancy. It is the 5G network and the last-mile reach of 5G into the homes is what FWA caters do. So they're using the on-air capacity, and FWA is the last-mile element.

I'm sorry. There is a queue building up, Sanjesh. So maybe we can discuss off-line if there's anything more.

[Operator Instructions] The next question comes from Mr. Arun Prasath from Avendus Spark [ Chennai ].

So my first question is on the anchor tenant characteristics, with Vodafone no longer a shareholder. Are they still anchor tenant? Or there is any -- what are the perks that -- the benefits that we had because of the anchor tenancy we tend to have or tend to lose because of this?

So I mean again, if I'm to understand your question, I don't think shareholders and anchor tenant have any correlation per se. I think anchor tenant is somebody who makes the tower, gives us the order of the tower and becomes the rollout -- the initial rollout when the tower is being built, that becomes the anchor tenant. So I think shareholding and anchor tenant have no correlation. So I think if we make towers for VIL as per their request and it's a new tower, they will become the anchor tenant. If you do it for Airtel, they will become the anchor tenant or Jio. So I think anchor tenancy and shareholding have no relation.

Yes. And just to add, commercially, there is no difference, Arun, if that's what you're trying to understand.

Okay. So -- but we will be still building towers for Vodafone if they request? [ You see a difference? ]

Yes, I mean, if there is a need for them to build new towers and the existing towers or co-locations do not serve the purpose, then we'll have a look at it because we have to help them with network expansion. Of course, our primary aim is to support as much as co-location as possible. But if there is a network expansion requirement, we will [ consider ].

And now that we are finally fully out of the bad debts and the receivables issue, in future, if this kind of a situation repeats, what do we have, which can -- where the things can play differently? Do we have any plan or any levers to tackle the same issues in a different manner in the future?

So I think you're asking something which has not happened. So I can't give you a response. But I think 1, 2 years ago, when we're having the discussion, I think we were quite confident that we will be in the situation we are in today. So I think the patience has paid off. And I think we are at a point where we are getting our dues collected, and we are also participating in network expansions. So as the situation comes based on the kind of situation, the management and the Board will act accordingly and make sure the interest of the company is protected. So that's the answer I can give you.

No. Why I'm asking this, in the past, we had some kind of security in terms of their interest in our stake or shareholding pattern, which is no longer will be there. So initially, we had this cushion. Probably, going forward, we will not have, so that's the basis behind the question. But nevertheless, because I think you're also actively pursuing the business from the BSNL expansion also. Is it the right understanding?

Yes. I think whenever available, we are serving BSNL as a customer. And I think we will continue to do that. I think BSNL is an important customer for us.

So typically, the government being -- I mean government PSUs being counterparts, again, the receivable issues kind of crops up. We are seeing it in the multiple other sectors. So what kind of a framework we have to tackle this kind of a risk to safeguard the ring-fence, the risk coming from these future businesses? Any thoughts on that?

So I think just to give you a sense that BSNL is not just future business. We actually have existing tenancies with BSNL, and we have been working with them for quite some time, and we have an MSA under which we operate. Of course, the issues that come across, we handle on a case-to-case basis. So it's not -- BSNL is not just future business. We have existing tenants with BSNL, and we have a relationship where we work with them to see that we get paid on time. And I think we have seen some good progress in the last 1 year in this front as well.

Right. Any indication from their side, how their rollout looks like? And what kind of a business you expect in terms of -- relatively with respect to, say, Vodafone's business or versus Bharti's business? Some color on that, please? Is it maybe for...

No, I cannot compare with the other. All I know is that BSNL is actively looking to upgrade their network. So all our tenancies are getting the -- wherever they're asking, we're providing the upgrades to 4G, and wherever there is the co-location requirement, we are making sure that we are serving that. So I think that's -- and we are actually working with them to make sure that any co-location that they're offering in the market, we are there and trying to capture that market.

Okay, okay, okay. And also regarding the investments in the energy business, not the separate one, but within the tower energy business. So far, I think if you can broadly split the CapEx that we have spent in the last 3 years on the core business versus what we have invested in the energy, that will help us in understand the magnitude of the investments we have made.

Arun, basically, energy is also part of our core business because in the end, while we report the 2 revenue separately, but in the end, they are one business, right? So broadly, if you are referring to the replacement CapEx, as we have clarified in the past, roughly 20% of our CapEx goes in replacement and then roughly 5% to 10% in other things like IT and a few other initiatives. But broadly, we are -- we really don't track energy because, for example, if we are replacing a battery, whether that's a replacement CapEx or energy CapEx, I mean how do we really classify that? So we really don't differentiate energy CapEx.

Okay, okay. So put it in another way, so we are spending close to INR 800 crores of maintenance CapEx roughly every year. So this energy CapEx will go into the maintenance as well?

Yes, our replacement CapEx is more than INR 800 crores. So any energy CapEx is pretty much part of the replacement run rate.

But I think you keep calling it energy CapEx. It's not energy CapEx. That is required to provide energy and provide the uptime. So I don't think we should look at it in that way that it's an energy CapEx. I mean providing power is our core business. So I don't think energy CapEx should be looked at in that sense.

Okay, okay. And anything you can call out on the investments in the renewables within this?

No, I mentioned to you, I think, first of all, in the past, we have rolled out about 28,000 solar sites. So I think that is part of the CapEx -- upgrade CapEx that is there. And in future, besides solarizing the individual sites, we are looking at investment in Green Open Access, where I mentioned in my talk that we have signed a PPA with a strategic partner of 130 megawatts at a 26% equity. So that's the 2 elements I could highlight from a renewable point of view.

The next question comes from Mr. Rahil Shah from Crown Capital Mumbai. Moving to the next participants. We do have a follow-up question from Mr. Vivekanand from AMBIT Capital Mumbai.

As per the DoT, India has around 817,000 towers. Now you have 2,35,000 towers. Altius has around 250,000 towers and BSNL, 70,000. So who has the industry's remaining towers? And are there any consolidation opportunities left in the tower space for you presently? Secondly, can you talk about the size of the revenue pools that are there in the small cells and lean tower markets compared to the current macro tower opportunity that you are pursuing?

Again, I'll try to see if I can answer this question. So you're asking is what's the -- if there is any other major players from a tower point of view, not that I'm aware of, right? So I think we can look at the numbers again on what -- because DoT may have some numbers which are actually not radiating also, right? So I think that could play a part in that number game. But I think the tower players you listed out, which seems to be correct. And your second question was that besides macro, what are the market that we can participate in, I mean, if that's what you were implying. So I think besides macro, as I mentioned, small cells, lean towers, lean towers, we have deployed close to 11,000 over the last couple of years. IBS portfolio is becoming stronger for us. And I think we have become a supplier. We have started to become a supplier of choice for IBS for our major customer. And we continue to provide bespoke solutions as far as small cells are concerned based on customer requirements. So I think these are the 3 ways we are looking at the market outside the macro market.

Okay. Is there any quantification possible at all in terms of potential revenue opportunity, maybe, say, broad ranges like 10% of current macro opportunity, 20%, 50%. I don't know. I'm just asking if small cells, lean towers, IBS put together, can it be material for you? Or is it just very small and perhaps only moves the needle marginally?

See, I think the -- in our business where revenue is driven by the CapEx that is invested, right, I think these sites cost much lower than a macro tower. So when you start talking about a percentage of revenue, I don't know what the percentage is. We can have a look. But the materiality comes from the fact what role these solutions play in the customer's network. So I think more than revenue, I think it's important to look how they play the role in the customers' network and we being the solution provider to meet all their customer network demand. So I think -- so while in revenue, because we are in an infrastructure industry and we get paid on the investment that we make, the materiality may not look that great, but it's a very critical element to provide the holistic solutions to our customers.

Yes. Just to add, Vivekanand, I think while Prachur explained the rationale, which is basically meeting the network solution requirements of the customer, revenue-wise, it's not material enough to be disclosed, and that is why we don't talk about revenue numbers for each of these segments. Yes, so it's a small number, not really material to be talked about.

Fair enough. No, I wasn't just referring to the current numbers. I was thinking more from a 3- to 5-year perspective that can this be 10% or 20% of your business on aggregate, small cells, lean towers, IBS, in 3 to 5 years.

See, I think it's -- again, it's a good return business, I think, and we have been participating. I think the leaner sites have a better return. But I think 3 to 5 years down the line, as the urban periphery expands and the urban requirements are there, I believe these opportunities will become bigger. How big that will become, it depends on how the network expands, what are the spectrum, what are the other issues associated with it. But it's an important element from a network point of view.

So Vivekanand, just to add to what Prachur is saying, I think this small cell or IBS or micro site solutions is more from a network densification and network capacity need focused kind of solutions. As the networks mature, as the data capacity grows or higher technologies come in, there will definitely be a need of such kind of solutions which will increase. And therefore, probably over time, it could become material. But for today, these numbers look considerably small because the macro sites are able to cater to a large part of the need of the operator. And that's the reason why we are in this space already so that we are ready once the densification begins to happen.

No, but I just want to clarify. No matter how small, I think the contribution of this revenue and revenue share from other competitors' point of view, Indus has still a significant share in this market, right? So if you look at the IBS market overall, I think we still have a...

Yes, we are the biggest.

We are a large player in that space. Anyways -- okay?

At this moment, I would like to hand over the call proceedings to Mr. Prachur Sah for the final remarks.

Thank you. In summary, we are pleased to have delivered strong operational performance in Q3, reaffirming our execution capabilities and customer-centric approach. Our constant engagement with the major customer has helped us collect most of the overdues, and we are confident of clearing the balance amount. We expect the ongoing network expansion by our major customers to provide us with ample opportunities to grow. We endeavor to ride this growth journey in a sustainable way and create value for all our stakeholders, including shareholders, customers and partners. Wishing you all a very happy -- have a good day. Thank you.

Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to audio conference service from Airtel, and have a pleasant evening.