Indus Towers Ltd
NSE:INDUSTOWER
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Indus Towers Ltd
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Good afternoon, ladies and gentlemen. I'm Vandana, the moderator for this conference. Welcome to the Indus Tower Limited Third Quarter ended December 31, 2022 earnings call. [Operator Instructions].
Present with us on the call today are the Chairman and Independent Director of Indus Towers' Mr. N. Kumar, along with the senior leadership team of Indus Towers' Mr. Prachur Sah, MD and CEO; Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; and Mr. Dheeraj Agarwal, Head of Investor Relations. Before I hand over the call, I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risks that we face.
I now hand over the call to our first speaker of the day, Mr. N. Kumar. Thank you, and over to you, Mr. Kumar.
Thank you, Vandana, and good afternoon, everyone. A warm welcome to all of you today afternoon. Thank you for joining us on the earnings call of Indus Towers for the quarter ended December 31, 2022. As you all may be aware, that Mr. Prachur Sah has joined Indus Towers as Managing Director and Chief Executive with effect from 1st January this year.
He brings with him a vast experience of about 22 years spread across business domains, including operations, strategic planning, oil and gas management among various other strengths he has. He is also known for building a culture that is value-driven and encourages innovation while maintaining the highest levels of safety, sustainability and governance. In his last role, he served as the CEO for the oil and gas vertical of Vedanta, and I have a great pleasure and welcome him to the Indus family and wish him all the success in the future.
I would also like to take the opportunity to thank both Tejinder Kalra and Vikas Poddar for leading the company commendably during the period before Prachur Sah joined us from September.
I'd now like to hand over the call to Prachur to take you through the key highlights of our quarter Q3 FY '23 and brief you on all questions and answers. Over to you, Prachur.
Thank you, Mr. Kumar, and a very warm welcome to all the participants on the call. Joining me today are my colleagues, Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; and Mr. Dheeraj Agarwal, Head of Investor Relations. I would like to express my delight by having joined Indus Towers, the largest passive infrastructure company in India as 1 of the largest [indiscernible]. I believe this is an exciting time to be in the telecom space with Indian marking towards digitalization and the ongoing transition to 5G being a key enabler officially. Along with my leadership team, I tried to delight Indus Towers' vision of enabling connectivity in every part of India.
Before I begin our agenda today, I would like to take a moment to recognize the contribution of our sales force and its relentless efforts towards our vision of enabling an Pan-India connectivity. During this quarter, we installed 6 new mobile towers along the Kedarnath Trek in Rudraprayag, which is 1 of the most popular [indiscernible] in India. The towers enable communication from Gaurikund to Kedarnath at an altitude of 12,000 feet. The connectivity is helping in transforming lives of locals, connecting pilgrims with their families and also making it possible to someone help during an emergency. We will continue with the pace of installing towers in remote and difficult events to enable digital inclusion.
Moving on the key themes I would like to discuss today. On the industry front, the government continues to take measures to change the strict deployment of telecom infrastructure across the country. To this end, it is working with cross sectors like NHAI, Ministry of Road, Transport and Highway, Indian Railways to align their right-of-way policy with central notified policy for faster utilization of land, billing available with them. Indian railways have amended their policy and allow IP1 infrastructure players to deploy telecom infrastructure on their land rush property. Given the scale of railways and other institutional infrastructure, such actions has benefited rapid rollout of telecom infrastructure, especially for 5G.
Talking about 5G, we are pleased to see that the 5G rollouts are in full song as operators are working towards their plan for a pan-India 5G rollout in the next 12 to 15 months. In less than 4 months of launch of 5G services, more than 50,000 5G-based transceiver stations, BTS have been deployed acro the country. With the top 2 operators together putting up more than 5,000 BTS per week in current months. This number should increase as the operators accelerate their 5G rollout across the country.
As a leading passive infrastructure player in the country, we have committed to facilitate the shift rollout of 5G services. We have seen increased demand in the form of additional loading of 5G equipment on our existing sites. We remain well placed to cater to this demand and maximize the opportunity arising out of it. As the network matures with greater 5G adoption, we expect that there will be a need for increased capacity as well, driving the demand for new sites.
With regards to 5G adoption in India, we can drop parallel from the global 5G adoption story, which continues to play out strongly. As confirmed by statistics mentioned in both the Election mobility report and the Deloitte CII Report. As per Ericsson, global 5G subscriptions grew by 110 million in the September quarter to 870 million and are expected to reach 5 billion by the end of 2028, accounting for 55% of all mobile subscriptions. Comparatively, global 4G subscriptions increased only by 41 million with 5G expected to reach 1 billion subscriptions 2 years sooner than 4G. The number of commercial 5G service providers also increased from 218 in June 2022 to 228 in September '22. As for Ericsson Mobility import, 5G subscriptions in India are expected to reach 500 million mark by 2027 with a penetration of about 40%.
The formidable 5G adoption journey will further drive up already strong data consumption by the sizable Indian customer base. The total data consumed across the top 30 operators combined grew by 19% year-on-year in the September quarter. The average data consumed per user per month across the top 3 operators stood at more than 20 GB for the quarter registering a year-over-year growth of almost 18%.
Complementing this growth is the estimate from the Deloitte CII report that India is said to lead the smartphone industry with 1 billion devices by 2026. The report from both Ericsson and Nokia have also indicated how India's data usage is among the highest in the world currently. And the average data consumption per user per month is expected to increase to around 40 to 50 GB in the next 5 years. The rapidly progressing migration to 4G and 5G, supplemented by strong data consumption should continue to fuel the demand for passive telecom infrastructure, both in the form of loading on existing sites and installing new sites. And we remain well positioned to address this demand.
Moving on to our operational performance. We witnessed steady growth in addition of macro and leaner towers. During the quarter, we had net additions of 1,466 macro towers and 1307 corresponding co-locations. Our gross co-location addition was healthy at 2130. However, higher churn at 823 resulted in lower net additions. Our total towers and co-locations at the end of Q3 were at 189,392 and 339,435, respectively, each growing by 2.5% and 1.35% on a year-on-year basis. Our tenancy ratio dipped marginally to 1.79 from 1.8, but continues to be among the best in the industry.
We continue to see good demand for our leaner tower portfolio, adding 1408 co-locations in Q3 after reporting an addition of 1535 co-locations in Q2. Including leaner towers, our net co-location addition stood at 2,715 for the quarter. We believe that the need for capacity expansion and new sites will be primarily fulfilled through leader structures. And as a result going forward, we are expecting a significant growth in the share of our leaner structure portfolio in our overall business.
I would now like to touch upon ESG aspects, which is a key component of our long-term business strategy and a responsible organization. We have started taking necessary actions for achievement of our set targets across the environmental, social and governance transitions. I'm happy to report that we are making good progress on this journey.
To name a few focus areas, we are constantly reducing our diesel consumption despite increase in energy demand in size. We are bringing a full control of our handling and dispose of our waste. Workforce diversity and safety remain key focus areas and new initiatives are being taken to improve them further. Our robust business continuity plan is in place to ensure 0 or minimal disruption to network with further recovery during businesses. We are now extending into all the critical areas across the organization. We are quite hopeful of our all-round efforts using desired results in our [indiscernible] and we will start reporting on the same in the coming quarters.
I would now request Vikas to take you through our financial performance for the quarter ended December 31, 2022. And I look forward to your questions. Over to you, Vikas. Thank you.
Thank you, Prachur. And I'm pleased to share with you all the financial results of the third quarter ended 31st December 2022. Before moving to the financial performance, I would like to present our operational performance. The total tower and co-location count was 189,392 and 339,435, respectively, each growing at 2.5% and 1.3% year-on-year basis and 0.8% and 0.4% on quarter-on-quarter basis. This was supplemented by an addition of 1,408 co-locations in our leaner tower portfolio, taking our lean co-location base to 5,683.
Now coming to the financial performance. Our reported revenues declined by 2.3% year-on-year to INR 67.7 billion, of which the core revenue from rental was down by 5% year-on-year to INR 41.7 billion. Year-on-year growth numbers were impacted by a combination of tapering of exit revenues, discount on co-location renewal, optimization of site configuration by our customers and change in revenue recognition pertaining to revenue equalization assets. Normalized for these factors, our gross revenue and core revenue grew by 2.6% and 2.8%, respectively, year-on-year.
On a quarter-on-quarter basis, our reported gross revenue and core revenues from rentals were down by 15.1% and 12.7%, respectively. The decline was largely due to the high base effect of previous quarter due to deferred revenue recognition of cost settlements. Adjusted for this, gross revenue was down 0.4%, and core revenue was up 0.2%, respectively, quarter-on-quarter.
Our reported EBITDA declined 68% year-on-year and 57.8% quarter-on-quarter to INR 11.9 billion. EBITDA margin was down 35.9 percentage points year-on-year and 17.8 percentage points quarter-on-quarter to 17.5%. The decline in EBITDA was mainly due to a provision for doubtful debt of INR 22.7 billion. The provision for doubtful debt is higher as the customer has indicated a challenge in complying with the higher payment plan in future till the fundraising materializes. Accordingly, the company has adopted stringent ECL computation resulting in additional allowance for doubtful debts during the quarter. Normalized for these factors, EBITDA grew by 3.5% year-on-year and 1.5% quarter-on-quarter.
Our reported energy margins were at negative 1.2%, in quarter 3 FY '23 compared to 14.6% positive in quarter 2 FY '22. Adjusted for one-off in the previous quarter, Energy margins were at minus 1.2% in quarter 3 compared to minus 3.5% in the previous quarter. Our constant endeavor to drive operational efficiency in our energy portfolio, coupled with seasonal benefits have aided the sequential energy margin improvement. We have reported a loss of INR 7.1 billion for quarter 3 FY '23, impacted by the substantial provision for doubtful debts and an exceptional item relating to impairment of revenue equalization assets.
As per Ind AS 116 accounting, revenues recognized based on straight lining of rentals over the contract period and the corresponding revenue equalization assets is created. The revenue equalization asset of INR 4.9 billion for the aforementioned major customer was impaired during quarter 3 FY '23. In addition to the nonrecognition of INR 0.7 billion pertaining to revenue equalization for the quarter FY '23.
Normalized for these items, our profit after tax grew by 4.6% year-on-year and by 3.3% on a quarter-on-quarter basis. Our cash flow from operating activities improved from INR 11.2 billion in quarter 2 FY '23 to INR 22.7 billion in quarter 3 FY '23. And our free cash flow for the quarter was at INR 6.2 billion. Our reported pretax return on capital employed and post-tax return on equity for the past 12 months were at 12.5% and 12.3%, respectively, impacted by the provision for doubtful debts and impairment of revenue equalization assets.
Moving on, I would like to apprise you of the receivable situation. Our receivables decreased by INR 14.4 billion during the quarter to INR 50.6 billion. Adjusted for the provision for doubtful debts, our receivables increased by about INR 8.3 billion. Customer paid a part of the billed amount till December as per the agreement. However, with no fundraising in sight, it is likely that the customer will face challenge in complying with the higher payment plan as committed. Accordingly, we have taken measures to derisk the balance sheet. We continue to watch this development at the customer's end, pertaining to the fund raise plan, which is critical for clearing its whole dues with us.
In summary, we had a steady quarter from an operational performance standpoint. Our financial performance is reflective of the collection challenges we faced from 1 of our major customers. However, the rapid rollout of 5G services across the nation provides a growth runway to the telecom space, and we remain optimistic about it.
I would now request the moderator to open the floor for question and answers, please.
Thank you very much, sir. We will now begin the question-and-answer interactive session. [Operator Instructions] The first question comes from Mr. Sanjesh Jain from ICICI Securities Mumbai.
I got a couple of them. First on the 5G loading opportunity. I just wanted to understand purely from the ability to load the 5G equipment on the existing towers. Do we have enough provision for an operator to come and load 5G? And if possible, on how many banks can they roll out simultaneously? How do you think there will be a situation where the operator has to shift to a fresh tenancy for loading this 5G side? How is the situation on the space availability of the tower purely from the 5G rollout perspective? That's number one.
Follow-up on the 5G. In the opening remarks, we did mention that the weekly run rate of 5G site addition is 5,000 per week. We have already done 50,000 of it. Other weekly run rate of 5,000 by next 12 months, we will be rolling out close to 250,000 BTS, which is more than the tower. So when we say BTS, what does it mean? Or at this state company's 5G voting on the existing towers, how should we feel the rollout plans and what are you seeing on the rollout side by the operator? So these are my first initial 2 questions.
Yes. Thanks for the question, Sanjesh. First, to answer on whether do we have enough capacity, space and the loading capacity on the existing towers. The answer is most of the towers, yes. So far, whatever rollouts we have done, we have not faced any challenge where we have to refuse loading of 5G on any of the existing towers. What typically goes on the tower is the radio and some antenna in some cases, especially in the areas where -- in 1 of the operators' case, for example, we have 700 spectrum for 5G is being rolled out.
So some sites, they have to either put up antennas. Otherwise, they may have multiband antennas and they follow antennae required there as well. So limitation in terms of space and capacity on the towers is not an issue. Today, 5G is allowed only in 700 megahertz and 3.5 gigahertz band. Should the operators need to reform the existing frequencies into 5G, those radios are already up on the towers. So they are not going to come in as additional loading on the towers, but it's just a frequency switch from, let's say, 4G to 5G or 2G to 4G or whatever.
So limitation, none when it comes to the loading capacity on the towers. I think we are good with that. And I don't think the operator would need to go to an additional site for rolling out their 5G requirement there.
Second -- your second question was on the 5G BTSs and 5,000 run rate and the total number of towers we have and so on. In case of 1 of the operators who is rolling a stand-alone 5G network because they are rolling out in 700 and 3.5 gigahertz. There are 2 radios per frequency -- sorry, 1 radio per frequency and therefore, 2 for that operator on a particular site. The other operator is only rolling out in the 3.5, so therefore, 1 radio. The BTS, which we refer to is the frequency-specific radio on a site. So if there are 2 frequencies of 1 operator and 1 of another operator on the same site, and there are 3 BTSs going on the same site. So therefore, the count which we will calculate in terms of number of towers and so on, I think that's the way to look at it.
No, fair enough, Now I've got a fair idea. Second, on the opportunity to further expand the tower footprint. And considering that initially, 5G will largely come in loading and considering that 1 operator is using 1800 as an uplink and other operator 700 as an uplink, which put me to a thought that we may not see a tower upside from the 5G rollout, it can largely get respected from a tower company perspective, just being a loading opportunity from the 5G. I just wanted to get your thoughts around the opportunities in the 5G. Would it be limited as a loading for us as a tower company? That's number one.
Number two, considering that the capacity creation is happening on the 5G, is it fair to understand that the 4G rollout may see a material slowdown and hence, a lot of tenancy slowdown we saw in this quarter is a resultant of that?
Okay. So let me answer both the questions 1 by 1. One, when we are talking about whether 5G is going to be primarily a loading opportunity? Or are there going to be new sites that are going to be required for 5G? Initially, when the operators are doing the 5G coverage on their existing network, it is, yes, largely going to be a covering or a loading kind of an opportunity for the tower company. But as the data and the capacity utilization is going to build up on the 5G layer, operators will certainly need additional sites to fill up the capacity gaps and the coverage gaps that are going to come up as a result of the data utilization that is going to build up in the 5G year.
So that certainly maybe depending upon how quickly they are going to do the 5G rollout in the country or how fast the data capacity builds up in the network could be anywhere between 1 to 2 years before new sites -- stand-alone sites are required for 5G.
When it comes to 4G, the way the networks are being rolled out because we are currently still not seeing 5G as a blanket coverage here, you will need a layer of 4G for giving the continuity of the data coverage across the geographies. So we don't think 4G is going to slow down. It is -- we are actually seeing the opposite, 4G equal amount of loading going up on the existing sites to take care of the data needs and then 5G is being built up parallelly. So we don't see 5G -- 4G slowing down. In fact, a lot of rural coverage if the operators are going to be approaching us currently initially going to be happening on the 4G space as well. So both are going on parallelly at the moment.
Last set of questions largely to Vikas. One, earlier on the accounting side, the straight line method, what we have discontinued and which has resulted in RTP coming down. Is it only respective to this 1 operator or as a policy we have done is for all the operators? That's number one. And number two, on the CapEx, the quarters, we have seen an acceleration to INR 1,000 crores. It is just to reinforce the 5G loading and then to augment the batteries and the VSAT capacity, that's the reason why the CapEx has gone up? Yes, these are my last questions.
Yes. Sure, Sanjesh. So I think as far as the accounting treatment for the revenue equalization asset is concerned, that's specific to the operator because of the uncertainty that we are facing. The other operators continue to basically be treated under the Ind AS 116 accounting. And on the CapEx side, broadly, I think there are 2 drivers that we had in quarter 4. So one of them is, of course, what you mentioned, the 5G-related augmentation in our power infrastructure and so on. And the second driver is also the fact that we are basically seeing operational momentum in terms of new rollouts and new builds. So they are pretty much work in progress, and we are sort of investing in that area.
The next question comes from Mr. Arun Prasath from Spark Capital, Chennai.
My first question is on the receivables. I think since this receivable issue started in the early part of the last year, you kind of said that post December 2022 operator has agreed to increase this payment payout. But now it seems like all the hopes are based on their ability to raise the funds. So my question is, if they are not able to raise the funds, what are the options we have at our disposal to collect the regular [indiscernible] amount plus the pending amount? That is my question number one.
I think -- Arun, thanks for the question. I think the situation is a little bit dynamic. So we are working with them to understand the pure situation. And our actions will be based on what we see. So I think we have done -- as Vikas mentioned, we have done a big scheme of the balance sheet in the interest of the compensation. And we'll continue to look at the situation on how the payments come, we [indiscernible] accordingly. Anything you want to add?
No. I was asking as per your MSA and under the contractual terms, what are the options you have at your hand to collect in case they continue to prolong this delay?
So I think, Arun, as Prachur also mentioned, I think we are working closely -- we are fully engaged with the customer. There are options that we are evaluating. We will certainly consult and take the guidance of our Board eventually. So all those things are basically currently being evaluated. So it's very difficult to really -- because it's a dynamic situation. It's changing every week, every month. So it's very difficult to really talk about any specific action right now. But certainly, I can assure you that there is a lot of focus from the senior management as well as the Board members to get to a solution on this one.
Okay. My second question is on the tower addition in the last 1 year. It seems that one of the anchor tenant added more than 25,000, 30,000 towers in, say, current year FY 2022, whereas in our case, of that, we have just got around close to 4,000 to 5,000 -- 4,500 towers. So basically, a market share of less than 50% base. Whereas in the previous year, it was almost close to 45%, 50% base. So how should we look at this from this -- from the market share perspective? Is it some way related to the -- our inability to invest because of the ongoing receivable issue? Or it is generally that we have been losing market share in the open market?
In general, you know this question can be answered in 2 parts. I think when you look at the market share, when it comes to microsites, I think we are currently doing about 53% of the new build. We may be started late in the game, it's probably [indiscernible], which we are starting to catch up now. And we believe they will be completing very soon. So I think that's what I would like to speak Anything else you want to add, Tejinder?
No, I think the volume wise as Arun -- as Prachur rightly said, scale up of the macro towers is happening. Obviously, in some cases, the -- when the operator has a sharing opportunity on a nearby tower, that always becomes their first preference because of the speed to market sometimes and obviously, from a cost perspective, [indiscernible] to the market. But nevertheless, we are now scaling up the numbers are also trying to see how we can reduce the tap for building up the sites as well and feed the demand towards the operator. So that scale-up is currently ongoing.
So our study going forward, can we assume similar kind of seat additions even if the rent covenant invest much more than the continues with the current base?
Our run rate in the coming quarters should increase given the requirement that we see from the operators and the way they are expanding the network.
And as a follow-up to the CapEx question raised by the previous participant. The current CapEx is -- will continue to be higher than the [indiscernible] to be there in the coming quarters?
As this is around INR 250 crores to INR 300 crores on a quarterly basis. So that means annually there is INR 1,000 crore increase in the CapEx?
Arun, Unfortunately, we cannot give you any forward-looking view or outlook here, but pretty much like I explained, CapEx spend higher is largely driven by the 5G augmentation and basically the momentum, the increase in the momentum that we are seeing in our rollout. So I think pretty much this sort of a stable business as usual investment is clearly that we see going forward.
[Operator Instructions] The next question comes from Mr. Mitul Shah from Reliance Securities, Mumbai.
First question is on this exceptional item of INR 4.9 billion. Sir, can you give some details on this?
Yes. So Mitul, the -- as per the Indian Accounting Standard 116, which is on the lease accounting, the -- basically, the long-term revenue contracts have to be recognized on a straight-line basis over the contractual period. And accordingly, there is a revenue equalization asset that gets created. Now in the case of this particular customer, because there is a challenge that is clearly visible to us. It is very uncertain that those long-term contractual revenues will be collected. So there's that element of uncertainty because of which we have impaired that revenue equalization asset pertaining to this customer. And that amounts to INR 4.9 billion on our balance sheet, which we have impaired. So that's the exceptional item that we have disclosed in this quarter.
And in visibility over near term in terms of similar amount or similar items will that repeated in coming quarters? Or it is almost done?
So specific to this customer, we have impaired the entire revenue equalization asset. Along with that, we have also stopped recognizing the revenue equalization related revenue in this quarter, which is the INR 0.7 billion I spoke about. And to that extent, obviously, we will follow a very consistent practice going forward.
Okay. Sir, second question is on provisioning, INR 22.22 billion plus provision. Do you see now it is more or less done and the quantum could be much lower in coming quarters or still there is uncertainty on that side?
Again, that's a bit forward-looking, Mitul. So I would only say that we have basically derisked our balance sheet to a large extent, recognizing the uncertainty as far as the collections are concerned. Clearly, the higher payment plan that I was talking about in previous quarters is dependent on the funding, which has not materialized yet. So there is a higher uncertainty that we are facing.
So accordingly, we have derisked the balance sheet by providing the INR 23 billion roughly on account to the customer, which takes care of a large sort of outstanding sitting on our balance sheet. Going forward, there might be more provisions, but it's difficult to quantify at this stage because like Prachur said, it's a dynamic situation and lot will depend on how the payments are received, how the collections happen going forward. So we will see how it goes.
In terms of revenue breakup, can you give approximate number or the customer contribution currently how much?
Mitul, again, I mean this is -- we really don't give customer-wise information because of the confidentiality that we have with the customer. So unfortunately, I can't help you with that.
Sir, last question on this earlier discussion that you are indicating that 4G is still ramping up despite 5G is already launched. And we also indicated in 1 of the reports that by 2027, 40% will be the 5G penetration. So whatever could be the penetration may be 20%, 30%, 40%, by what level of penetration of 5G do you think then 4G will then slow down over 4 years.
So Mitul, I think this question operators can obviously answer better. But what we are seeing from the scale of rollout the operators are doing, they are almost trying to get to, let's say, more than 90% of the sites with 4G coverage. And that means they're all existing sites and some we are also seeing a trend of fresh stand-alone sites being set up as well because of the handset penetration, probably, I don't think 4G is slowing down at the moment and 5G penetration of handsets, all of us know where it is at this moment.
So we clearly don't see 4G stopping. Depending upon the geographic coverage and what strategy the operators would like to take on rolling out 5G and which cities and rural how they want to handle it. Currently, the visibility which we see is still 4G expanding for some more time before we can say 5G is the only technology growing. We see both happening for now.
The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai.
My first question is on the receivables. So is it fair to assume that most old receivables are now provided and the receivables that you have now are mostly for the current quarter? And also this quarter, the receivables increased by about INR [indiscernible] billion, excluding the provisions, going forward, is there a trend which you can look at? And what's the payment understanding you have now from the customers from whom we are not reaching payments?
Yes. Thanks, Kunal. So I think a substantial part has been derisked with this provision that we have created in this quarter. And as far as the payment understanding is concerned, like we said earlier, I think the discussions are ongoing. We haven't received any sort of new payment plan or a revised payment plan. So pretty much, we are still hoping for the current payment plan to sort of guide us as far as the future is concerned. So we are in discussions. And if there is any update, eventually, we will let you know. But right now, there is no revised payment plan that we have.
Sir, just to understand, like so October to December, whatever billing you have done, what proportion of that you would have collected?
I think I would say, basically a significant part was collected, but certainly, it was less than 100%. So basically, I really -- because these are -- these percentages do vary, so I really don't want to take a percentage here, but rest assured that we are collecting a substantial part, but there is still a part that is -- that remains uncollected, which is why our receivables are going up. And we are working on this.
Sure. And my second question is on the advantages and disadvantages of leaner towers. Would you consider shutting some of the macro towers and replacing them with leaner towers? Are there any advantages and if you can talk about the CapEx, OpEx, economic for the leaner towers, incrementally, should we expect mostly leaner towers getting constructed?
See leaner towers, both from a CapEx spend perspective, as well as from an OpEx perspective for the operator are definitely economical. And depending upon the rural or the urban requirement because urban if the densification is to happen, there are very few possibilities of setting up these macro big towers and a lot of rural and lean sites are now getting into the rural densification of the network.
When it comes to rural coverage, still, there are certainly ground-based sites that need to be set up, but those structures are also becoming leaner and therefore, CapEx-wise economical and OpEx-wise economical as well. Coming to whether we will be shutting down any of the towers, I don't see that happening unless otherwise, in some cases, where because of the operator network orientation reasons they choose to exit any site. And if a tower is becoming vacant, we will, obviously, in that case, hold up the tower and kind of exit there.
But other than that, we don't see anything like that coming to us from the operators for now. We are want to close down the bigger towers and go to the smaller ones. The new are being currently set up as the leaner structures to a large extent.
Sure. And for the leaner towers, what's your return expectations, assuming that there is a single tenant, what kind of return on capital would you expect for these towers?
Yes. Typically, I think we have shared this in the past also, Kunal. I think for leaner towers our -- because they are CapEx light, OpEx light sort of structure, our return profile is better than the macro towers at a single tenancy level. So typically, we get somewhere, let's say, high single digit to a low double-digit sort of a return profile from the leaner towers. But again, it depends on geography, on the circle various other factors, but broadly high single digit to low double digit.
Sure. I have 1 last question, which is [indiscernible] the growth CapEx increase, we didn't see any increase in rental revenues. So would that happen with the lag?
Yes, certainly. I mean the growth CapEx that you see is basically, like I said, a lot of it could be work in progress as well. So certainly, the revenue will happen with the lag. But like I said, I mean, in terms of our -- when I explained the sequential growth in the year-on-year growth, there are other factors also because of which you don't see that in the numbers yet.
The next question comes from Siddharth Gupta from Voyager Capital, Mumbai.
I must express my disappointment with the evasive answers with regard to operator that we're not naming because -- I mean, it's quite obvious that the Board is cognizant of the fact, and we'll be engaging with the company. My question is twofold. Firstly, do we again [indiscernible] of payment like it suffered that you're negotiating on a payment plan? Do we have any security in terms from the operator in terms of 1 of their foreign promoters stake in our existing companies left with us?
And if yes, what is -- does the Board have a contingency plan as to when would this be encashed against their particular payment? Because this is clearly evolving the company on a very, very deep level. And the security being shares of our own company, the market type of which we were holding rapidly, it is a major call of concerns for all investors. If you think the management would shed some light on that, that would be great.
Yes. Sure, Siddharth. I fully acknowledge the concerns that you have raised, I think, clearly, like we said earlier, all of us are working on this particular issue, it's a serious issue we realize. As far as the payment plan and the security is concerned, if you look at the history, we were certainly secured to a large extent through the branding pledge from the promoters and that was sort of monetized through a deal back in the quarter 4 of last fiscal and we did receive the proceeds of that in the month of March and subsequently some more in the month of May and June.
So we did manage to control our receivables with the security that we had. Subsequent to that, we do hold some secondary pledge on some more shareholding of the -- of 1 of the promoters. But because that's a secondary pledge, we don't think there is much value left in it based on the market share price today, et cetera. So pretty much the trade receivables that we have with the customers are largely unsecured at this point of time. And as I said earlier, we are working towards a resolution but there's no sort of refined payment plan or an update on the payment plan yet.
Okay. So does the Board have a tentative mindset as to when -- by when do we call it quick and we track the company to be, say, the IVC or till when do we negotiate with the company within a timeline like even if it's a broader one that could be presented to the investors?
Yes. So I think, to be honest, I think at this time, currently, we are discussing with the Board. We have -- we are engaging with our customers. So as I said, as Vikas was also mentioning, as we move forward and depending on the payments that we get, right, we will enact the plan and we'll share with you. But as of now, our definitely to keep working with the customers [indiscernible], right? So -- and we are also cognizant of what needs to be done and [indiscernible] working on that.
I just want to add to Siddharth, that until December, the payment plan basically envisaged the part payment of the news, and that plan has been met. So January is pretty much the first month wherein our higher payment plan needs to materialize and we are watching that situation very closely.
The next question comes from Mr. Sachin Salgaonkar from BofA, Mumbai.
A couple of questions. I think in your press release, you guys indicated that there are challenges with 1 of that operator to comply with your higher payment plan in the future. So the question out here is, if 1 operator can't pay higher payments and what incentive do other operators have to comply to that higher payment? Because anyways, you guys are not taking any significant action against that operator, right? You're not shutting down data as you guys have no secured amounts from that. So I mean, at some level, the customers of yours are forced to pay slightly higher, which 1 of the operators is not doing. How do you resolve this issue between all 3 operators?
You're raising a very interesting point, Sachin, I think, first of all, I think we need to understand that as per the MSA, if there is any delay in the payment, the MSA provides for the interest to be charged for the delayed payment. So it's a very important point because the customer who is delaying payment is basically charged interest.
So if the other customers adopt a similar way to delay payment, then there will be an interest cost involved. So that is 1 factor. And the second important factor for us to realize is it's not the same situation with all customers. I mean our customers are at different stages. We have 1 customer with a very difficult financial situation, very stressed financial institution, as we all know. Whereas the other 2 customers are that way healthy.
So I don't think simply because 1 of the customer has less ability to pay should really put a question on the ability of the other 2 customers. So currently, we are not seeing that situation, and I hope we'll sort of continue to see cooperation from other customers.
Okay. And what is the probability that you guys might waive off that interest payment from 1 of the customer who is not paying? Because we are not able to collect the current money and we are also expecting interest to be collected, right?
Yes. So we have collected interest from the customers. It's not that we are giving off and that's reflected in our finance income in this quarter. So we did manage to collect interest on the delayed payments.
Because 1 of the statements that you guys have also mentioned in your press release is that ability as a going concern of this entity. If that is a scenario, how should we look at that?
Well, we have relied on the auditor statement. And basically, the entity is seen as a going concern, of course, with some dependencies on their lenders and other parties. But I think we sort of maintained that position. If there's any change in that position, then accordingly, we will do the needful.
Okay. And when could we get an update because for the last more than 1 year, obviously, you guys are engaging with the customer. Your Board is cognizant about it. And I do acknowledge it's an evolving situation. But how far are we away from getting some kind of a resolution assuming there is no fundraising happening at that operator?
I think if you look at it that way, I think we have been progressing on this. It's not that we haven't made progress. So at different stages in different quarters, we have made progress, and we have updated. Like I said, till about March quarter and the June quarter, we had the security and we were monetizing that security and managing receivables thereafter, we did engage with the customer and negotiate a payment plan and we were sort of working towards that plan, obviously subject to refund raising, which has not materialized. So there are discussions ongoing, and we are keeping the investors updated on that. And if there's any further update, we'll certainly let you know.
I hear you guys are making progress, but sometimes it looks like 1 step forward, 2 steps backward, right? Because again, we are seeing an additional allowance of doubtful debt, which is being taken again. So I just wanted to understand when we come at a point where we could see a sort of a decent amount of resolution? And the related question is, do you even think about taking a call out, shutting down certain tower or sites or that is not in something which is under consideration?
So Sachin, if I may say, I think the question that you have asked is a very pertinent question. And I think the question on what actions we take on operations would actually we take on collections, it depends on few other things. As Vikas mentioned, there was a payment plan agreed with that customer for the quarter ending December, which is the net and there was a higher plan that was to be met in January. So we are working very closely to monitor that situation, depending on how those payment plan gets activated, we will take the appropriate actions.
The next question comes from Mr. Kishor Iyer Cholamandalam MS, Chennai.
Most of my questions have been answered.
The next question comes from Mr. Giriraj Daga from [indiscernible] Visaria Family Trust, Mumbai.
Again, the same point on the receivable side of it. Just to get some broad [indiscernible], as per my understanding, the receivable total outstanding, including the gross up will be closer to INR 80 billion, INR 85 billion. And the numbers look scary because that is the last year PBT also when I look at last year, FY '22, PBT, that was 85 billion.
So the point is that will we continue to make the new receivables, which will look outstanding because that's why everybody is asking the same question? I think how far we will continue to go? In terms of priority, anything you understand you have already given that in terms of unsecured receivables will not be the priority list also. So if Board is aware about that shortly, when you look at like this, it looks like the compromise -- we are compromising the share of the minority interest shareholder. So that way, like what -- like Board is taking any action or will we continue to make new receivables?
So Giriraj, I think we'll be belaboring this point a bit. Clearly, the -- first of all, the receivable figures that you are computing on a gross basis, I presume that is all customers. So yes, we have a receivables issue. And I can only assure you that we are not compromising. We are working in the best interest of the shareholders. There are various options, and we are basically evaluating those options to ensure that we don't do something which will have a long-term solution.
So the Board is fully involved. The senior management is fully involved and rest assured that we will take the right action. Now simply you're taking an operating action and as you are envisaging, you're reducing services, or shutting down services, well, there are those options, but that may not be in the best interest. So we are evaluating and we will take the right action when the time comes.
Lastly, any kind of cutoff data?
Honestly, it all depends on how the payment plan pans out. I think this is a discussion we'll keep you updated. I think it all depends on how the payment plans are and because making visibility we get. So I think we'll get to that, we will take the action.
Due to time constraints, I would like to hand over the call [indiscernible] to Mr. Prachur Sah for the final remarks.
I think despite the situation that we've all discussed just now, I think we remain confident on strong business fundamentals, both on the 5G side and the growth that we are seeing on the towers. The 5G journey that the industry has embarked upon makes this a very exciting phase as I had outlined in the beginning of my commentary. We believe there are strong catalyst in the telecom space that we help industry continue to build the growth [indiscernible]. And I thank you all for joining the call, right. Have a good day. Thanks.
Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to our Audio Conference Service from Airtel, and have a pleasant evening.
Thank you.