INDIA'S LEADING TELECOM tower company, Indus Towers — created after the merger of Bharti Infratel with the erstwhile Indus Towers — grew at a tearing pace during FY22. Net revenues nearly doubled to ₹27,717 crore, while profit rose 68.65% to ₹6,373 crore, making it India’s 35th most profitable company this year. With 188,447 towers and 335,791 co-locations, Indus is the second-largest telecom tower company globally, outside of China after American Tower Corporation (223,000 towers).

The sharp rise in total income helped Indus rise 34 ranks to 67 in the Fortune 500 India listing this year. The company provides passive telecom infrastructure and deploys, owns and manages telecom towers and communication structures, for mobile operators.

The company did not respond to queries from Fortune India.

There are two reasons driving the growth in Indus Towers. First, there has been a sharp upsurge in mobile data usage over the past two years in the country as people were locked down at home due to the pandemic. Average data traffic per smartphone in India at 20GB per month in 2021 is among the highest in the world, and is expected to touch 50GB a month in 2027, growing at a CAGR of 16%, according to the Ericsson Mobility Report, 2022. Some of that future growth will be driven by the adoption of 5G services, which has just been launched in the country.

The second and the more pertinent reason for the rise in revenues is the creation of a combined entity following the completion of merger process between Bharti Infratel and Indus Towers — then jointly owned by Bharti Infratel (42%), Vodafone (42%), Idea Group (11.15%) and Providence (4.85%) — on November 19, 2020. The company name was changed from Bharti Infratel Ltd. to Indus Towers Ltd. on December 10, 2020.

The Notes to Accounts in the audit report submitted by Deloitte Haskins and Sells puts it very succinctly: “The financial result and statement of cash flows for the year ended March 31, 2022 are not comparable to previous years.” That is because of the scheme of amalgamation and arrangement to merge Vodafone’s, Idea Group’s and Providence Equity Partners’ respective shareholdings in Indus Towers into Bharti Infratel, creating a combined company that will own 100% of Indus Towers.

From Bharti Infratel’s 95,372 towers in FY20 to Indus Towers’ 1.88 lakh in FY22, the story has been of doubling presence by merging operations. “The uptick in revenues and profits this year is a one-off for Indus Towers and is unlikely to be replicated in future,” says a senior telecom analyst. That’s because there is little scope for further expansion of telecom towers in the country. India already has 1149.11 million mobile subscribers accounting for a mobile tele-density of 83.27% as of end-August 2022. Without a huge surge in the mobile subscriber base, there is no need to invest heavily into installation and operation of new telecom towers in the country.

Another factor is that after the 2G scam, the number of telecom service providers has fallen from seven-eight in each circle to just three — Reliance Jio, Bharti Airtel and Vodafone Idea — across the 22 circles. “India is a two-and-a-half operator market which is not going to change. All said, there is limited scope for growth in the tower-sharing business now,” says the telecom analyst. As a result, the tenancy ratio (number of operators per tower) has fallen from a high of 2.34 in FY17 to 1.81 in FY22. There is little chance that this number is going to increase in the next few years.

Data usage will grow once 5G becomes more prevalent by 2027. By then, there would be 500 million 5G subscribers accounting for 39% of the country’s mobile subscriber base. “The expansion of 5G services will emerge as the one positive for Indus in future,” says the telecom analyst.

While Indus Towers has done well in the last fiscal, there are quite a few uncertainties that it has to navigate in the immediate future. For starters, the company is currently operating without a CEO, after Bimal Dayal left to join as CEO of Adani Transmission in mid-September. Till the time his vacancy is filled, chief operating officer Tejinder Kalra is responsible for the functioning of the company under the guidance of the Board.

Next is the problem over dues that Vodafone Idea has to pay to Indus. In the July-September quarter, Indus Towers accepted a proposal from Vodafone for softer terms to clear dues. As of September end, the company’s total trade receivables were ₹6,499 crore. Under the new plan, Vodafone Idea will pay part of the monthly billing till December 31, 2022. From then on, it will pay the entire amount every month. In addition, the dues outstanding till December 31, 2022 will be paid by Vodafone Idea between January and July 2023. It remains to be seen whether Vodafone Idea will be in a position to stick to its commitment.

All said, while Indus Towers is in a sweet spot at the moment, the next few years could be tricky. It all depends on how well the management navigates the treacherous waters ahead.

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