Indus Towers Ltd
NSE:INDUSTOWER
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Indus Towers Ltd
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Good afternoon, ladies and gentlemen. I am Ratika, the moderator for this conference. Welcome to the Bharti Infratel Limited first quarter ended June 30, 2019, 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 Bharti Infratel Limited. 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 terms of [ certain sentiments ] that we see. I now hand over the call to our first speaker of the day, Mr. Akhil Gupta. Thank you. And over to you, Mr. Gupta.
Thank you very much, and a warm welcome to all of you, and thanks for joining us on the earnings call of Bharti Infratel for the first quarter ended 30th June 2019. I think before I start the call this quarter and you see the development, let me quickly update you on the merger process and discuss. As of date, we have received all the permissions including the final NCLT order. We only now await the approval for enhancement of foreign direct investment limit from DoT. We do expect that, overall, we should complete the merger in all respects within August 2019. A major development for us for the quarter and for all the Indian companies has been a change in the accounting policy and financial reporting. We have adopted the new accounting standard, Ind AS 116, on leases from 1st April 2019. Most of you will be familiar with IFRS 16, and this standard replicates the global standard. This new center primarily affects us on 2 counts, but still on the revenues, we have the rental revenues, which we received from our customers. This is [indiscernible] over this remaining period of the contract. And the second is on the cost side. Yet the rentals that [indiscernible] the financial leases. We have an update, what's called the modified retrospective method, that's going through the standard. And we believe that has been done by most of the large corporates in India. This approach does not require restatement of previous periods with respect to these new standards. However, maintaining the highest level of reporting standards and transfer entry, we have made various disclosures in our quarterly report under Section B to provide a like-to-like comparison with the last year. I will request our CFO, Bala, to give a short update later on the specifics of these standards for better understanding. Moving on to the development on the business side. The telecom industry in India clearly seems to be stabilizing. After very lumpy period which has seen adjusted gross revenues decline by about 30% between financial year '16 and '19, this has been despite an exponential growth in both subscribers as well as wide data consumption -- wireless data consumptions per user per month. It is also reflected in our operational trends this quarter, where after reporting the net colocation declines for the last consecutive 6 quarters, we have for the first time now seen an increase in net colocations on a quarter-to-quarter basis. We hope and believe that this trend will continue as the deal that we made on behalf of the industry is to improve coverage and capacity across the nation. Coming to some high-level financial and operational highlights for the quarter. As of 30th June 2019, the consolidated tower base stood at 92,632 with consolidated colocations at 173,247 with a colocation factor of 1.87 at closing. Just to remind, consolidated earnings including 42% of Indus. The colocated I figured that we are lower by 13.7% on year-on-year basis, mainly on account of excess Vodafone-Idea. The consolidated revenues for the quarter at INR 3,712 crores grew 1% on reported basis. Excluding the impact of Ind AS 116, the revenue for the quarter would have been INR 3,630 crores, declining by only 1% year-on-year. The EBITDA at INR 1,953 crores grew 28% year-on-year on a reported basis, representing an operating margin of 52.6%. However, excluding the impact of Ind AS 116, EBITDA for the quarter would have been INR 1,557 crores, up 2% year-on-year with an operating margin of 42.9%, up 150 basis points year-on-year. With regard to the consolidated PBT at INR 1,106 crores, grew 3% year-on-year. Excluding the impact of new standard, the PBT would have been INR 1,038 crores, down 3% year-on-year. The PAT at INR 887 crores grew 39% Y-o-Y, however, without the impact of the new standard, it would have been INR 843 crores, up 32% Y-on-Y. Operating free cash flow at INR 1,207 crores grew 22% and without NPAT, 15% year-on-year. The ROC pretax and ROE post tax were 26% and 27%, respectively after moving to Ind AS 116. As we will go from the above, while the colocation declined almost 14% on a year-on-year basis, and as mentioned primarily through the consolidation of Vodafone and Idea. How we have very quickly recovered in terms of financial performance, which has shown moderate improvement in the last year on a like-to-like basis. This, along with the fact that we are now seeing revival of demand, our [indiscernible] must [indiscernible] for our company. It's also reflective of the inherent progress and maturity of our business model, which has been followed by all tower companies in India, including our company. I would like to mention that, in all likelihood, this would be the last investor call for Bharti Infratel in its current form where it has its old operations and holds 42% in Indus Towers. This is, as I mentioned earlier on account of impending merger with Indus, it should be all be completed by end of August. That is within this current quarter.The bulk entity will be one of the largest [indiscernible] globally. Of course, [indiscernible] being in a -- separately or together. We would have probably second only to China does because of the 307,000-odd colocations that we would have as of 30th June 2019 on a total basis. For your clarity, as this [indiscernible] as on the [indiscernible] itself, for this June quarter, its revenues would have been public. It should be 30 June quarter, the revenue would have been INR 6,200 crores; EBITDA of over INR 3,200 crores; back INR 1,000 crores [indiscernible] over INR 1,800 crores. The net debt for the content [indiscernible] would have been about INR 40,000 crores.I would like to take this opportunity to thank our MD and CEO, DS Rawat, for [ steadying ] this company very clearly for the last several years. For it to emerge and not only financially a very strong and stable company, particularly in these times when most of the companies are going through massive stress, but more important, for the shining example of highest levels of corporate governance with its quirky full audits and unparalleled transparency with its financial and operational disclosures in the quarterly reports. As you were made aware last quarter, DS has requested merger will consider [indiscernible] a role in the merged entity.To conclude, we remain confident of the long-term potential of the Indian telecom industry. The ongoing digital revenue invested in next-generation technologies will open up new avenues for investor true demand. It's ticked up with the imminent [indiscernible] windows. We believe the combined entity will have a unified, nationwide presence and offer our very strong financial muscle to invest in the requisite telecom tower infrastructure in the country.Thank you all. I will now request Bala to brief on the accounting changes from this quarter before we will open the call for questions and answers.
Thanks, Akhil. Good morning, everybody. Effective April 1, 2019, the company has adopted new accounting standard Ind AS 116, which deals with leases as notified by the government. Under earlier standard Ind AS 17, operating leases were treated as revenue expenses, whereas under Ind AS 116, all long-term leases that are operating or finance leases are recorded in the balance sheet. The new standard impacts our performance as lessor and lessee.As lessor, all our contracts with customers having escalation clause on the lease term. Going forward, rental escalation over the remaining period of the lease term are straight lined the form of revenue equalization reserve and recognized under rental revenue. In the initial years of customer leases, the revenue from revenue equalization reserve will be higher and will be lower as it approaches the expiry term.As lessee, all our lease agreements with the landlords for sites, et cetera, are long term in nature. The company has adopted modified retrospective approach as allowed by the standard. Accordingly, the company has recognized right-of-use asset as on April 1, 2019, on a consolidated basis, representing the book value of the right-of-use assets as on that date. The right-of-use assets represents the present value of future lease payments over the lease term from the commencement of the lease. Going forward, the right-of-use assets are amortized over the lease term on a straight-line basis and reflected in the financial under depreciation and amortization.The company has also recognized lease liabilities as on April 1, 2019, on consolidated basis, representing the present value of remaining lease payments from April 1, 2019, to the end of the lease term. Interest is charged on the outstanding lease liabilities at the end of each period.As on April 1, 2019, the company has charged to the retained earnings an amount of INR 9,452 million, net of tax, being the difference between lease liabilities and right-of-use assets, which represents the depreciation on such right-of-use assets till 31st March 2019.Rental expenses paid to landlords will no longer be shown as operating expenses, and accordingly, EBITDA will be higher on this account. The actual amount paid towards rental will be reduced from the lease liabilities.With the above changes, the financial statements and related ratios are not comparable with the previous period. For the better understanding and for the benefit of the reader, detailed information has been provided under the Section B. Thank you. With this, we can open the floor for questions now.
[Operator Instructions] The first question comes from Mr. Manish Adukia from Goldman Sachs Mumbai.
I have 2 questions, please. My first question is on the rent per customer. And that seems to have seen another sharp jump in this quarter. Just wanted to clarify if that's just a function of the rentals getting reset higher for existing customers because of exits? Or are there any one-off in that? And I'm referring to the number that you've given adjusted for the accounting change. And my second question is on the gross add. That number seems to have seen another quarter of moderation. In the past, you've talked about operators needing north of 250,000 towers for expanding their 4G coverage. What would, in your view, be driving this moderation, especially at the time when 2 of the 3 operators seem to be long-time away from those targets?
Manish, this is Bala. On the rate, we give just the rental revenue [ we're doing ]. This is largely coming on account of loadings and increments, which happen on a quarter basis. And this is a function of growth in tenancies and loadings. Rental reset, if you know that -- you will see it on the net shown. There are not much savings largely coming from the ongoing business.
On your second question, Manish, we do see new power buildout picking up, and that's visible from Infratel [ Sanborn ] numbers where we're building towers for operators, but yes, not to the level that we've seen in the past. And also one of the leading operators is still in the process of merger and integration of the network. We haven't seen significant additions coming in from there. We are also looking forward to that capital infusion from the leading operators. We are now hoping that, going forward, this will translate into meaningful rollout for coverage and capacity as we move forward from here.
And if I can just quickly ask one more question. I think on the tower industry, per se, how would you describe the competitive dynamics on the tower side, so for example, from like the American Tower Corporation, potentially Jio towers coming?
So with consolidation, the good news is that ATC becomes similar in terms of size and scale and the [ all zone ] towers will also be in terms of size and scale very similar to what we are. And you see our return ratios in terms of what we have done. Mostly our buildout has been organic, and at that, we are at the current ratios at the current price points. So we've not seen any change on pricing pattern in the market, if that's where you're leading into.Tower capacity, we've said in the past, are not fungible capacity very easily. And wherever we have an existing tower in the requirement, we still continue to gain market share in tenancies that are available against whatever operators are building out on their own. Whatever is coming out, we still think we are gaining market share. We do not have a public report which I can quote and show that we're gaining market share there.In terms of competitive dynamics, we still think, with all this consolidation playing out, effectively, this 5G, when there is more requirement of towers and more densification of towers for capacity, we will see that, depending on scale and size of the operator, we will be able to gain large part of what comes up as growth.
The next question comes from Mr. Kunal Vora from BNP Paribas Mumbai.
First question is just wanted to check if there are any one-off during the quarter. Or can we look at the numbers as sustainable numbers on the business which we can build forecast like depreciation of other income, finance, are there any one-offs in the quarter numbers?
Kunal, there are no one-offs other than those disclosed in terms of the changes in the Ind AS 116 on depreciation as well in the amortization of right-of-use and finance charges on the interest on lease liabilities. Other than that, there are no one-offs on the depreciation or interest.
Okay. Second question, your average resident service contract period has been declining over the years and make it out for the next 5 years. With operators having to recognize the lease leverage on the balance sheet, do you think they would prefer to sign shorter-term contracts instead of the standard 5-, 10-year contracts?
First, to your question of average digital life coming shorter is also because there's been lesser growth on guarantees. And as the guarantees age every year, our entire larger base of tenancies is what gets reduced by year every time you move forward. On your specific impact on India space, I really don't know if there is a propensity for operators to sign up and have a shorter lease. It comes with its own risk of saying you could have higher rate coming up in the future, too. So it is a tradeoff that operators need to do, and in our case, by the MSA, there is a higher tariff that an operator needs to pay if he chooses a period lesser than certainly that's defined in the contract.
And also, [indiscernible] charges go up at this time for a shorter period. It's like now [ there are plenty ] operator goods, too.
Sure, sure, sure. So considering that some of them are going through financial strain and their balance sheets will look, well, weaker with large lease payment liabilities.
No. No, I don't think any responsible company will make business decisions on account of accounting decisions. And in any case, their EBITDA also goes up, so it doesn't matter the net debt to EBITDA if it remains same or actually better.
Sure, okay. Just one last question, if I can. Look, like you mentioned the debt number would be INR 14,000 crores, including lease liabilities. So including the INR 5,000 crores payments which might be made to Vodafone-Idea, your debt would increase around INR 19,000 crores. Would you be comfortable with that level? Or would you liquidate it to a higher level?
No. I think the complaint always has been that we don't have enough debt. And as you see, our -- as I pointed out, the EBITDA will be about INR 3,200 crores quarter. So as you can imagine, such a large EBITDA absolutely no problem with that kind of debt, especially where that debt is mainly on account of lease liability increasing.
Sure. So the target debt to EBITDA has been 2x. So is that still on? Like, are you looking at acquisitions to take it to that level?
No comment on that. But yes, over a period of time, if there is more capital required, say, for organic growth, [ then I agree ], looking at what is coming in the industry, we will need to get -- we would like to do this with debt rather than raising equity.
The next question comes from Mr. Pranav Kshatriya from Edelweiss Securities, Mumbai.
Sir, can you please elaborate a little on this reassessment of your cost amounting to INR 1,246 million? What is the nature of reassessment? And why there is such a sharp deficit? That is my first question. Second is can you elaborate how exactly the interest rate movement will impact the lease interest which is there in your books, if it impacts at all? And lastly, if you can give some color on how the accounting for the exit charges happens? In this case, is that having an impact on Indus own one because of Ind AS 116?
Kshatriya, this is Bala, again. The reassessment is obviously an annual exercise of the companies we undertake in terms of as a part of review of accounting policies and the estimates on basis that we have identified certain provisions, which were carrying excess can be written back into the P&L. So hence, that is the -- actually, this is not a -- it's a regular event, but this is not a quarter-on-quarter repetitive one. On the second question, which is relating to the interest rate movement on leases, the accounting standard describes the incremental or marginal rate of interest as the criteria to be adopted, which means that, tomorrow, if there is a new lease that we enter into, it will be based upon the interest rate prevailing at the time of taking on the new lease. So it won't be any historical rate or any rate which is prevailing as of today. Third, on the exit. If the lease gets terminated, which is officially a landlord lease, both the right-of asset -- right-of-use asset, which is sitting in the asset side of the balance sheet and the corresponding lease liability, which is sitting, will also be netted off, and it will be written off in the balance sheet on a net basis.
Sir, basically, referring to this INR 90 crores revenue what you are getting on exit charges paid by different operators, the settlement which you have done with operators?
That will not be -- that will be -- I mean...
[indiscernible] That's an ongoing amount every quarter, which will keep coming for 3 years.
Okay. So this Indus, there is no impact on that? I just wanted to confirm that.
Yes.
Yes.
The next question comes from Mr. Sanjay Chawla from JM Financial Mumbai.
My first question is on the tenancy churn that you have reported, and I'm looking at your numbers on Infratel plus 100% in that basis. So we have seen almost 1,500 exit this quarter compared to 10,300 in the previous 2 quarters. Now, Vodafone-Idea had said that they are looking at shutting down our recent 22,000, 23,000 sites during the merger integration. So what would be your sense or estimate of how much more churn or exits we should expect or building for Infratel plus Indus over the next 2, 3 quarters on account of what Vodafone-Idea had indicated? And second question is your thoughts on what kind of impact the supply from Jio or towers of [ SPV ] that they have created could have on the renewal pricing that we would have to see or face in FY '22? So if you could give some color on that.
First, on exits of operator, I know there was -- this is slightly dated information when there were 22,000 colocations announced by Vod-Idea. For us, we think large part has played out, and this is something that will have to be confirmed by Vod-Idea itself. We are seeing tapering of exists that come out, and that's why you see a positive net addition for the first time in 6 quarters now. We hope that this is the tail bit and the end of it. There could be some small exits which keep coming in on account of operators trying to [ edges ] their network, but that could be small numbers. But that's more an expectation. It's for the operators to look at. We think large part of it has already played out. On your second question of [ SPV, ] well, we'll have to wait and watch how this plays out. There are certain bulk negotiations, and I've said, it's not easy to shift capacities from one location to another. We will have to play it by the market at that time. Today, we have not seen any meaningful shift on any tenancies for any of the power company unless the service quality has been terribly bad. If they're not able to service their customers, that has been the reason why we have seen shifting of capacities being done by operators. It is a fairly tedious exercise even for an operator to rehome and recreate the network from other operators unless there are huge differential gains. So we'll have to wait and watch how this plays out whenever that even comes in. It's early for us to be speculating. We do not even know what the price points are for this [ USV ], so we'll wait and watch.
Let me just add my view on this equipment has been done by Jio. I think these towers and as always you hear, is not that certain they are coming to be. They admit very clearly it's a financial restructuring exercise. What we have seen there, at least what is reported, is that the terms are as per the MSA. It is generally in the market. There's nothing really new here. And that's why we really don't expect any meaningful difference on the competitive scenario on account of this development.
Sure. Because where I was coming from is that there is [ SPV ] which is currently fully supported by, let's say, a single tenant. So really nothing stops them from offering the 30,000 rate, maybe 25,000, but no escalation for, let's say, 2 years, to get a new tenant. Because anything incremental is going to be profitable -- profit for them. So from that point of view, would you not perceive it as a risk?
Well, we seriously expect very sharp operators like Jio to be happy that its competitors get it at a cheaper price. Absolutely important.
Yes. But obviously, a lot of the benefit of that new tenant -- or the rental from new tenant would go to Jio itself.
Well, if that was the case, all over the world, people would pay more themselves and charge lesser to the other operators. It doesn't make commercial sense at all.
Okay. And just one other question, sir, which was asked earlier on this INR 125 crores provision reversal of [ IPAC ]. Could you just provide some breakdown of this credit item in terms of the expenses, power and fuel, employee and R&M and others where -- how much one should allocate towards each of the items?
Significantly, it's almost 50-50 between energy and other operating expenditures. And the -- out of the second one, it will largely be on the network expenses.
Okay. And just for how many quarters does this amount pertain to prior quarters?
This is cumulative balances. It is not any -- pertaining to any specific quarter. It is an accumulation as of 31st March 2019, which is, as you see, reassessed at the beginning of each year.
Okay. And if I could just squeeze in one little question on the energy spread. For Indus, we are getting a negative energy spread in the case of Indus of almost INR 27 crores, INR 28 crores negative. Can you confirm this figure? And secondly, what is the reason for this negative spread? When does it get normalized?
So normally, first quarter is when contracts -- some of these contracts do come up for annual renegotiation as part of the fixed energy model. And you do see this coming up from time to time depending on which operators' contract are coming up for renewal. There have been a few renewals in the case of Indus. And there was also a small amount of one-off all told previous quarter on their energy, which I show in the margin then. We said in the past that energy margins have to be seen on a full year basis. And there, we believe, this will again turn into a positive for a full year basis.
Okay. So what is your outlook on energy margins now going forward on a full year basis?
Again, we've said 3% to 5% is a fair estimation. If we are able to get into addition as we see now better results, that's what shows up as [indiscernible] same. And these margins are visible to operators, too. So every time these contracts come up for renegotiation, it kind of plateaus down to the same levels again.
[Operator Instructions] The next question comes from Mr. Dipak Daga from Credit Suisse Mumbai.
Just a follow-up of the Jio-Brookfield deal which you spoke about. Would love to hear your thoughts on couple of points: a, obviously, with this deal, it's from a consolidation perspective in your industry, I think that Jio-Brookfield into the kind of stance more better position. So what's your thought in terms of their aggression about consolidating? B, obviously, with this deal, there is kind of a deleveraging at Reliance's end coupled with what the fiber things they will do, so then we say that the telecom industry kind of seems to have stabilized, and we are seeing tenancy growth. Do you really think -- or you think probably this is just the beginning of probably another round of some fighting at the telecom industry end?
So let me take the second part first. My feeling is that what is happening and the eye on paring down the debt is signs of more discipline coming into the industry and every player trying to look at its leverage and the results. And my personal view is that this would indicate the more the simple in the approach in the market rather than a pressure on up irrational pricing. But that's my view. I think time has come when we could be looking at some kind of correction in the pricing in the market and not devices as such.
Okay. Okay. And then you are talking both from a tower and telecom operator's perspective?
The tower is joined at the hip with the telecom industry [indiscernible] so obviously, where I indicated Jio want to telecom industry, if we -- that's on design, not -- is very visible. But if telecom industry scenario improves, naturally for the better infrastructure providers, it's others may fret.
So Dipak, to add to your question on the first one on [ admission ], we'll have to wait and watch, as I said earlier, too. In the past, too, we have not gone in for an organic growth with our companies within the country. And mostly, it's because there is an overlap invariably, given our scale and size. When I say "our", it means Infratel, [ Sanborn ] and Indus on a [ calendar ] basis. Any operators that we've evaluated, there is some amount of move on that, and that's where you look at the funding over our current prices for looking at any acquisition there. For smaller companies, it did make sense to inorganically look at growth because the organic growth was very slow for them. It made sense. Going forward, will this new entity be aggressive? Our comm towers, yes, they are visible. There are -- Jio is already a tenant there. It probably makes sense for them to look at that far more aggressively. Would it have overlap with us? Yes, there would be a certain amount of overlap, too. So we keep evaluating our own auctions in terms of what value it adds to us in terms of going for these acquisitions. Given our scale and size, if there are towers to be taken, these will be primarily for capacity to be built in some of the areas because the smaller tower companies were pretty much focused in the city and CBD areas and will not need the rural. Some of the rollout that we are seeing now is primarily towards carrying the [ BMC ] circuit into the rural, trying to get in and in the cities -- in the CBD area to fill up coverage and capacity requirements that are coming up, a, because of higher frequency and, b, because of higher utilization, which seems to be the bigger reason that we see why operators are getting interested. Lastly, I think with 5G, the requirement of towers could move up. The world is already talking about moving 5G and doing some early trials. The next couple of years, that could be the market that would increase densification of cell sites. There, again, these could be assets which could be leveraged very easily by operators to reach out.
I think one more what I'd add is that the Jio composition in terms of it's out of their hands. A lot of them were on Vodafone and so on. And there would be serious consideration whether there can be other operators who can come there. Also, the fact that Jio has deployed several technologies, 800, 1800, 2300 or 2600, so that these will also need to be seen as to how much is the real potential left for other operators to come on.
Sir, understood. And just one follow-up question. If I understand it correctly, about 41,000 towers are just exclusively 4G, older than that. There are no other tenants on there. So with this deal, do you see that exclusivity kind of a trend continuing northward, southward, kind of [indiscernible] segment?
Hard for us to comment at this time. But honestly, I don't even know the [ quantiles ] of the exact deal. It's not in the public domain. Infrastructure, again, can they do fresh rollout? My own understanding is limited there, but I understand the towers that are transferred into [indiscernible] will be logged then, and that would be the revenue-generating source. Additional rollouts might have to happen under a separate circuit. So we have to wait, as I said, before we can give a commentary on any of these things.
The next question comes from Mr. Aliasgar Shakir from Motilal Oswal Mumbai.
I just have a question on Bharti in terms of competitive position going forward. You did mention then we've gained market share. But in the backdrop of Vodafone-Idea giving us lesser tenancies and also the point that the particular circuits of Vodafone-Idea's independent towers, which have gone to ATC, I understand those particular circuits, ATC now has the first line of refusal. So in that context, are you saying that [ it's likely ] Vodafone-Idea's of more tenancies, further tenancies would go to ATC, and therefore, we would lose some competitive position there?
So to the first point that you said, the towers that ATC required from Vodafone-Idea already is a 1-tenant tower because it's either Vodafone or Idea as a merged entity there. Any operator who's wanting to expand or create capacity has 2 options. One is to bring in more loading, which is more likely to happen on those towers, where they're already present, whereas, if they want additional capacity and coverage, they will have to get into a neighboring site or a new site, which is where an intra-tower becomes more attractive for the larger growth. And as you understand, the business is that if you get tenancy, there's a quantum jump in terms of how the profitability is. For loading, yes, there is -- it's profitable but then you get a small delta in terms of 10% to 15% additional revenue. So we actually think unless new rollouts are done in these areas next to our sites, given, as I said, we build the sites for the leader in most of the circuits, any subsequent operator trying to do a catch-up would invariably find these sites to be the most suited to come in as a fresh tenant. And once they're logged in as tenants, it gets ready for competitors, too. That is true that expansion capacities are far cheaper to come by adding if you've got additional spectrum by adding more electronics on the existing side. So we do not think this has caused any aggression or a change in competitive scenario for us. In fact, it turns a little healthier because now, from a scale and price standpoint, the pains and gains become very similar for all the tower companies. And also, given that there is a premium to the cost of building that is being paid, the return ratios, even at the existing price points that we have, would be dilutive for someone if we take the tower and equipment to the value that it cost for us to build. So we think there will be more clarity with scale and size between operators. And because there are 3 large dominant players in the market, they are negotiating for us, too. Your ability to do gross discounting or giving one operator undue benefit over another person will become more and more difficult because the larger customers will obviously demand the same benefits for the entire base, which will be very disruptive to the value of the tower company there, too. So we think there'll be clarity. Our own registration costs for providing service on a [ non-equity ] basis. So we've been abiding by that, and we've not seen any change in the marketplace.
Do you think there could be more price competition than we have never seen in the industry so far given that, in case you would want more tenants and therefore they would probably, I mean, think that it's better to have another tenant lower cost -- lower price than not have anyone?
So precisely the point that I was trying to tell a couple of minutes back was that if you give a discount to one operator today, the tenancy growth rates are anywhere between 5% to 10%. For that 10%, if you give a discount rate in a large customer who's holding, say, 60% or 50% of your tenancy base would demand that on the entire base. And that's the point I said. The power of strong customers negotiating is that, that they can use this as a tool to get the benefit for the entire base, which will actually become even revenue negative thinking about EBITDA. Second, because they've paid a premium to buying a tower, your ability to discount becomes that much more lower.
The next question comes from Mr. Sanjesh Jain from ICICI Securities Mumbai.
My question again is under the cost reversal. We said that 50% of this relates to power NPL. 50% is on the network cost. So if I see our network costs adjusted for this reversal has gone up by 11.7% quarter-on-quarter, we have never seen this kind of inflation in our number. Is there any change in the model in terms of an in-house versus outsourcing or CapEx versus OpEx? Anything changing in the cost structure there?
There is no change in costs for that. If you look at it in terms of the total OpEx, which is essentially you are seeing in the quarterly report, it's largely coming out of repair and maintenance, which is coming out of the -- it was a logistic of 50% we talked about. There are no other changes in the operating model because the CapEx versus OpEx are also positive themselves.
So what led to this inflation then?
So there Ind AS. There are only 2 line items, which is [indiscernible] the repairs and maintenance, which is the network expenditure, and there are some other one-offs, small one-off in the other expenses, which is, again, as per the policy that is being done.
So will it be fair to assume that this cost structure will sustain? Or how should we see the cost structure from here?
The cost structure will -- I don't think its dramatically changed other than because of the policy changes. So you'll have to assume that whatever in the previous quarter, we have reflected that will continue. This is one-off in terms of the policy changes that have happened in this quarter. But just to add. So maybe, I think, on a full year basis, it will probably be fair to compare adjusted for 116 adjustments. We should not be way off. There are certain things which you do advance a little bit in terms of seasonality and other aspects. So there could be certain expenses that come in. There's also an [indiscernible] cost increase that we run through in a [indiscernible] the last quarter, too. So there are some of these. But on a full year basis, we don't see any significant change.
Okay. Just one last question on the same. I understand we had a different operating model for Indus and Infratel, where I guess Indus was more in-house and Infratel was more outsourcing. Is there any thought over there, what will be the more entity model will look like?
Again, at this stage, it's difficult for me to comment. We are continuing. There are pros and cons of both the models. This is something that's been widely debated and discussed right now. You have to play the horses for the courses. Right now, there are other integration matters which are a priority, which we are trying to finish on a daily deal on regulatory and other requirements. But this is definitely one of the other items that are there. In fact, there are 2, and a few geographies have tried out some part of the also smaller 2. But we've realized there are benefits, pros and cons of both. So we will come back and communicate once there is a change, and you would be able to see that also on the numbers that we disclosed on manpower side because there is a bearing on the numbers that we report on manpower and also in terms of classification of costs a little bit between network to the manpower cost. So we will communicate as and when that change happens. As of today -- this is premerger, so as of today, we are managing both the operations absolutely independently until the day that the deal is announced.
But I think it would be fair to assume that, for the foreseeable future, we'll continue this way it is because we don't want to rock the boat. There other integration clarities, so the hybrid system will be continuing for the time being.
The next question comes from Mr. Varun Ahuja from Credit Suisse Mumbai. The next question comes from Mr. Himanshu Shah from Dolat Capital Mumbai.
Just a couple of questions. Beyond the energy spread and investor [indiscernible] this quarter, anything specific over there, sir?
We did answer this question. We said normally Q1 contracts do come up for renewal and also Q1 energy costs are also slightly higher. And that's why you see that energy margin to be seen on a full year basis. On a full year, we do expect that we'll make between 3% to 5% as the margin. Anything beyond that as part of the negotiation gets offered back to the operators.
Okay. I think during this quarter, there has been some increase in your debtor level. So if some color can be provided like on the sustainable debtor levels?
Himanshu, can you repeat the question? Your voice was crackling in between, so if you could please repeat so that we can hear that clearly.
Sure, sir. So I mean this quarter, we have seen some increase in the debtors so some color from the [indiscernible] on the sustainable debtor levels?
Himanshu, this -- in case this is largely [indiscernible] phenomena I would assume because we are following up with the customers on the collection side, and there are delays from the customers in terms of collection. But on a sustainable level, I don't think I can make a comment at this point of time because there are no changes to any of the arrangements with the customers.
Okay. Sir, lastly, can you provide some color on the [indiscernible]?
So the moderate rate of tax [indiscernible] that will not change anything.
Okay, so post [indiscernible] benefit will kick in so we should lease the module tax-free.
Yes, because the DDT will go away for [indiscernible] 42%, the DDT will go away, but [indiscernible] payout will still remain there.
The last question comes from Mr. [ Gaurav Singhal ], [ DK Partners ] Hong Kong.
I just wanted to follow up on a comment you made in an earlier question saying that tower companies and the [indiscernible] are really -- are the same industry, and if the environment people that want to benefit both. But if I just check that statement thereon and look at the environment over the last 3, 4 years, the mobile operators have been in a [indiscernible] environment, good earnings and [indiscernible] capital has gone down quite substantially, whereas, the [indiscernible] they built it on #17 due to declines on anywhere to the synergy. So when your contracts come up for renewal, do you think there would be downward pressure on pricing just because your customers have seen their earnings go down quite substantially? I have a follow-up after this.
I think that, if you look at the business model of the entire company, everything doesn't come up for renewal at the same time. And the problem as we have pointed out, both [indiscernible] reduced the prices and one, to have to reduce it across everything. I don't see at that thing, besides the region in the [indiscernible] in the world, and therefore, as long as [indiscernible] they increased [indiscernible] because of the here business model [indiscernible] biggest operators. I don't see where there is big risk.
Okay. Got it. And then the other question I had was on Reliance and Circles. Have you now the -- resolution professional has put out a public notice inviting resolution applicants [indiscernible]. So for the towers that Reliance and Circles has, you mentioned there might be a lot of oil left in your tower assembly. It may not be as strategic for you, but do you think it makes sense to -- or how you can bid earlier the financial investment if these towers are level. Enough on the next $3,000 or less per tower [indiscernible] will you be interested in committing a [indiscernible] bid in the next one group [indiscernible] that line?
As it gets easy or not and we see something [indiscernible] look at other financials. [indiscernible] investing. Better yet, [indiscernible].
Okay, and sorry, just because they're -- or I think they're resolutions have to concede to submit an indication of interest I think in the next one week. So would you mind -- like can you share? Would you be committing an indication of interest before the deadline for [indiscernible]?
His family has a long time to address, but I really can't give you any indication that we will or we won't.
Okay. So I have just one last question. So obviously after the merger, your shareholdings have changed quite substantially in terms of the similar entities, and then both Vodafone ilt as well as [indiscernible] have said that they want to cut their shareholding down. [indiscernible] Airtel as well as Vodafone PHC. I think you'll combine them over the next 25%, 26%. So I was just curious that -- this is what I'm missing with the combined industry will be more independent. I'm just curious does that have -- this is not worth [indiscernible] intention of [indiscernible] if the shareholders of the company was to become less [ MNO ] heavy, or does that have implications on the operating returns. Like, will they became [indiscernible] U.S. tower companies or other global tower companies that show independent in terms of far returns in places.
And the way [indiscernible], we have always been very, very independent irrespective of the shareholding [indiscernible], and if but not one [indiscernible] dependent, we would not have the strictest company. And of course, [indiscernible] moment and [indiscernible] there was a majority ownership by Airtel, which is too [indiscernible]. It would be loyally I think a majority ownership so that can only technically make it more independent and not less. But what is something about it that's gone very, very independently. You know any kind of favor or pressure from any shareholder?
Sir, just one last question if I may. So for invest demand sharing which months basically tend to pay the annual dividend, like it is August, so I guess the last. And also for the combined entity, what would be the scale of the end quality, that definition.
Well, I think the -- come the -- more tend to do what I do, as in look at the dividend for [indiscernible] but I don't see any big change in that, the kind of free cash flow is there and depends that we have underleverage. I would expect the policy as it's been really today to continue.
Got it. I'm sorry, [indiscernible] in this dividend, it's paid in which month? Is it July? Or is it August?
Hopefully, it would have been paid out after the March quarterly reports, but I think now it can only be done after the budget.
At this moment, I would like to hand over the call to Mr. DS Rawat for the final remarks.
Thank you very much. I like [indiscernible] despite losing 14% of guarantees on a year-on-year basis, you've managed to close the quarter with consolidated revenue at INR 3,712 crores, up 1% year-on-year and profit after tax at INR 887 crores. This establishes the robustness of the business model. With a positive net addition during this quarter, we hope and believe that this trend will continue as operators postconsolidation and raising a significant capital recently will now focus on their growth strategy, ensuring a strong 4G [indiscernible] presence by expanding coverage and capacity. We are best placed to capitalize on these opportunities by playing a key role in building and sharing wider telecom infrastructure with all customers on a nondiscriminatory basis. Last week, said this would be my last earnings call. I wanted to take this opportunity to thank each one of you for the support extended in creating this fantastic company, Bharti Infratel. And look forward to your support in taking this to newer heights that it truly deserves as a merged entity with PAN in the upper trend. Thank you very much.