Welcome to the Indus towers Limited third quarter ended December 31, 2023 earnings call. For the duration of the presentation, all participants' lines will be in the listen-only mode. After the presentation, the question and answer session will be conducted for all the participants on this call. In case of a natural disaster, the conference call will be terminated post an announcement. Present with us on the call today is the senior leadership team of Indus towers. Before I hand over the call, I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risk that we face. I'll now hand over the call to our first speaker of the day, Mr. Prachur Sah. Thank you, and over to you, Mr. Sah.
Thank you, Wanda, and a very warm welcome to all participants. Joining me today are my colleagues, Mr. Vikas Poddar, CFO, Mr. Tejinder Kalra, COO, and Mr. Dheeraj Agrawal, Head Investor Relations, on the call. I am pleased to present our business performance for the quarter ended December 31, 2023. This month marks the completion of my first year at Indus, and I'm truly honored to be a part of a great organization and contribute to its commitment towards putting India first. Coming to the quarter, in line with the trajectory of the previous few quarters, we are proud to have delivered the highest ever tower additions in our history. This momentum continues to be underpinned by strong demand from one of our major customers, especially in rural areas.
Another update is that the collection from one of our major customers slightly improved in Q3, with some collection against the past overdue. Before I apprise you of the developments within the key facets of our business, I would like to take a moment to acknowledge and appreciate the contribution of our field force as they continue to work relentlessly towards Indus's goal of enabling pan-India connectivity. During the quarter, our teams on the ground overcame formidable geographical challenges to install, install 13 solar power towers in Ladakh Zanskar, Ladakh's Zanskar Valley. Being situated at 7,700 meters above sea level, the team enabled connectivity along the entire 250-kilometer-long route. Moving to the regulatory landscape, the government continues to take steps to help accelerate the rollout of telecom infrastructure in the country while being cognizant of the environmental aspect.
During the quarter, the Telecommunications Bill was passed in Parliament, and we are optimistic that its progressive provisions will help maintain a robust telecom network. The recognition of telecom infrastructure as critical telecom infrastructure ensures network security with punitive consequences for damage, which is a commendable aspect. Additionally, we remain hopeful that this bill will play an important role in eliminating the burden of multiple levies, taxes, Right of Way challenges, while ensuring uniformity across the diverse landscape of India and promoting ease of doing business. After the Green Open Access policy was notified in the September quarter by the Ministry of Power, the same has been adopted by Karnataka, Madhya Pradesh, Maharashtra, Punjab and Uttarakhand.
Additionally, the composite billing scheme for multiple power connections, which was introduced a couple of quarters back, has been adopted in Madhya Pradesh and select DISCOMs of Rajasthan and Uttar Pradesh, among others. Moving on to 5G. Rollouts by the top two operators continue to proceed at an accelerated pace, with 5G services now available to customers located across the country. The industry-wide total number of 5G-based transceiver stations or BTS deployed stands at almost 400,000, with more than 7,000 BTS being deployed per week in November. Therefore, we continue to see good traction in our loading revenues. We expect the 5G loading revenues to be gradually supplemented by a demand for new sites once a certain penetration level is achieved to aid the network decongestion. Given our expertise in the passive infrastructure space, we believe that we are well-placed to capitalize on these opportunities.
The swift deployment of 5G infrastructure is expected to be complemented by a rapid uptake of 5G by the end consumer as well, as per statistics mentioned in the Ericsson Mobility Report. As per the report, the 5G subscriptions are expected to reach 860 million in India and over 5.3 billion globally by 2029. During the September quarter, global 5G subscriptions grew by 163 million, compared to the 110 million additions in the corresponding quarter of the previous year and have touched 1.4 billion. The rapid uptake of 5G, in conjunction with the ongoing migration of users from 2G to 4G, is providing a boost to data consumption within the country.
For the top three operators, the total data consumption grew by 23% year-on-year in the September quarter, and the average data consumed per user per month grew by 14% year-on-year to 23.6 GB in the same period. The robust data consumption story, coupled with the swift uptake of 5G, is expected to spur the demand for passive infrastructure, and we remain well positioned to address this demand. In terms of the operational performance for Q3, we are excited to have recorded the highest ever tower additions in our history, as I alluded to earlier. Please note that during Q3 FY 2024, we increased our macro tower and co-location additions more than 5 times compared to our additions in Q3 FY 2023.
We managed to add 7,563 macro towers and 7,217 corresponding co-locations, underpinned by robust demand from one of our major customers, coupled with our efforts towards significantly increasing our share in the business of this customer. Total macro towers and co-locations at the end of Q3 stood at 211,775, and 360,679, respectively, each growing by 11.8% and 6.3% on a year-on-year basis. Our industry-leading tenancy ratio stands at 1.70. Co-location addition on our linear tower was the highest in the four quarters, at 1,351 in Q3, and the overall base increased to 9,994 co-locations.
Including linear towers, our net co-location additions were at 8,568 in Q3, as against 6,372 in Q2. Shifting now to a progress update on our 4 key strategic priorities, namely, market share, cost, efficiency, network uptime, and sustainability. Firstly, regarding the market share, as I had mentioned earlier, our quarterly macro and co-location additions increased more than 5 times over the same period last year. This indicates significant improvement in our share in the business of our major customer, who has been rolling out extensively. The proactive measures we have been taking to cater to this huge demand for tower additions have helped us increase our share. Our robust partner ecosystem, coupled with meticulous resource planning and continuous product harmonization, has helped us improve time to market for our products further.
These efforts continue to be supplemented by digital interventions we have been implementing. We expect our major customer to continue with the rollouts in rural areas in the near future, and we are confident of being its preferred and trusted partner for its network expansion. Secondly, on cost efficiency, our initiatives towards reducing our operating and capital expenses have continued in Q3 as well. Diesel accounts for a large part of our operating costs, and we have been constantly reducing diesel consumption despite the increase in energy requirement from addition of new sites and 5G equipment. We reduced our diesel consumption by 7% year-on-year in Q3 through ongoing measures, including use of renewable energy, electrification of non-electrified sites, and operational efficiency. We are accelerating addition of solar sites every quarter, and we added more than 3,300 solar sites in Q3.
Regarding CapEx, our sharp focus on product standardization and resource efficiency is helping us optimize our spend per site. Negotiating with vendors and reusing existing infrastructure after redesigning it for upgrade activities are also under focus to keep a check on the cost. Thirdly, on network uptime, which is an important aspect for the customer, we managed to deliver a higher uptime of 99.97%, despite challenging weather conditions, including cyclones and heavy rains in the areas of Tamil Nadu, Andhra Pradesh, and West Bengal. The determination of our field forces, coupled with a robust proactive response framework for adversity, go a long way towards delivering such performance. Moving on to ESG, which is a key focus area for the company, we are pleased to see that we continue to make steady progress within each dimension of ESG.
With regards to the environmental aspect, our initiatives towards reducing our GHG emissions continue to bear fruit. We have been increasingly using cleaner sources of energy to power our sites. We have significantly increased our solar sites to 6,665 from 1,496 at the beginning of the year. As I mentioned earlier, the continuous reduction in diesel consumption is helping us reduce our emissions. We are also taking steps to promote use of eco-friendly solution in our transportation activities and employee travel. On the social front, our resolute approach towards improving gender diversity is yielding impressive results. It has increased to 11.3% from 6.3% at the beginning of the year. Our focus hiring programs are across levels and co-locations.
Policy interventions and a conducive and inclusive working environment are helping us attract and retain female employees. Ensuring the health and safety of our employees and partners remains at forefront of our thinking, and to this end, we launched an electrical and road safety campaign during the quarter to create awareness for safe practices among our field force. We have also been providing ESG training to our workforce, including partners, to inculcate a behavioral change among our people. I would now request Vikas to take you through our financial performance for the quarter, ended December 31, 2023, and I look forward to your questions. Over to you, Vikas. Thank you.
Thank you, Prachur, and good afternoon, everyone. I'm pleased to share with you all the financial results for the quarter ended thirty-first December 2023. I'll briefly touch upon our operational performance before moving to financials. A strong addition of 8,568 co-locations, including those on linear towers, have really helped the overall operation, financial performance, of the company. Coming to the financial performance for quarter three FY 2024, total revenues increased by 6.4% year-on-year to INR 72 billion. Wherein the core revenues from rental grew by 7.3% year-on-year to INR 44.8 billion. On a quarter-on-quarter basis, our reported gross revenue and core revenue from rentals were up by 0.9% and 3.2% respectively.
The core revenue quarter-on-quarter growth was also aided by the base effect of deferment of revenue recognition for a transaction in the last quarter. In terms of profitability, our reported EBITDA increased by over 2x year-on-year and 4.8% quarter-on-quarter to INR 36.2 billion. EBITDA margin increased by 32.8 percentage points year-on-year and 1.9 percentage point quarter-on-quarter to 50.3%. Please note that the EBITDA of quarter 3 last year was impacted by provision for doubtful debts of INR 22.7 billion. With regard to the provision for doubtful debts of INR 0.6 billion reported in the current quarter, I would like to explain the transaction with a major customer and the treatment of the same in the books.
We have collected and recognized INR 3 billion against the past overdue, in addition to the 100% monthly collection, which resulted in reversal of provision for doubtful debts of the same amount. Additionally, we have adjusted a part of the monthly collection with interest receivable to the extent of INR 3.3 billion during the quarter. That has resulted in an increase in interest income in the quarter, and correspondingly, a similar amount of provision for doubtful debts has been created. The reported provision for doubtful debts in the books hence reflects the net effect of the additional provision created and the reversal of INR 3 billion. Normalized for provision for a major customer, EBITDA grew by 5.3% year-on-year and 2.4% quarter-on-quarter.
Energy margins were at -2.7% in quarter 3 FY 2024, against -1.2% in quarter 3 last year and -2.1% in quarter 2 of FY 2024. Given the nature of our energy business, we work on reconciliation with our customers. In quarter 3 FY 2024, we had an impact of a settlement for the past period. After adjusting for the impact, the energy margins are similar to quarter 2 FY 2024. Quarter 3 last year had benefits from reversal of certain provisions. As touched upon by Prachur, we continue to work on reduction in our energy expenses. Our reported profit after tax grew by 19% quarter-on-quarter to INR 50.4 billion, as against a loss of INR 7.1 billion in the corresponding quarter of the previous year.
Quarter 3 FY 2023 PAT was impacted by the substantial provision for doubtful debts and an exceptional item relating to impairment of revenue equalization asset. Please note that with regards to pending matters on entry tax before the courts, we have reassessed our contingent liabilities, and based on the reviews emanating from various judicial bodies, we have provided for them in Quarter 3 FY 2024. Accordingly, there's an increase of INR 1.3 billion in depreciation and INR 0 billion in interest cost. In addition to the interest adjustment that I explained earlier, overall finance income was also aided by cash interest collection on overdue from a major customer. After normalizing for the one-off impacts of provision for doubtful debts, entry tax and impairment of revenue equalization asset, our profit after tax increased by 4.6% year-on-year and 15.8% quarter-on-quarter.
The reported pre-tax return on capital employed and post-tax return on equity for the rolling twelve months were at 19.2% and 24.8% respectively. In terms of the cash flows, free cash flow for the quarter was at INR 8.7 billion, despite CapEx remaining elevated at INR 26.5 billion. As I have stated in the last earnings call, subsequent collection of delayed payment for quarter two from a major customer aided the free cash flow in this quarter. The CapEx continues to be high on account of strong tower additions by one of our major customers. We believe that these investments will aid business growth and help us generate long-term value for the shareholders. Our trade receivables increased... I'm sorry, decreased by INR 1.7 billion due to higher collections from one of our major customers.
The full impact of the higher collection is not reflecting due to some timing differences, as INR 3 billion was collected in January. With regard to the past overdue, we remain in constant discussions with the customer for clearance of the same. To sum it up, we are pleased to have delivered a robust operational and financial performance during the quarter. In addition to the business growth, the financial performance was also aided by unwinding of the past dues. The strong operational performance was underpinned by an accelerated rollout by one of our major customers in rural areas. We expect its network expansion and 5G rollouts to continue to support our business growth in near future. I would now request the moderator to open the floor for questions and answers, please.
Thank you very much, sir. We will now begin the question and answer interactive session for all the participants who are connected to the audio conference service from Airtel. Due to time constraints, we would request if you could limit the number of questions to two to enable more participation. Hence, management will take only two questions per participant to ensure maximum participation. Participants who wish to ask questions may please press star one on their touchtone mobile telephone keypad. On pressing star one, participants will get a chance to present their question on a first in line basis. To ask a question, participants may please press star one now. First question comes from Mr. Sohan Joshi from Mumbai. Mr. Joshi, you may ask your question now.
Am I audible?
Yes, Mr. Joshi, you're audible.
Yeah. I want to ask, what is the status of our tower fiberization? Have we achieved 100% coverage on tower fiberization?
So Mr. Joshi, the tower fiberization, of course, is being done by the operators. As of now, as per the data available, from various sources, typically the Indian tower fiberization for most of the customers is in the vicinity of about 30%-35%. So there's still a long way to go for tower fiberization, barring some one of the operators, which has recently, last few years, launched the services. This fiberization is at a little higher level, but overall, there's still quite a gap.
Okay. So, by what duration, I mean, are we expecting to cover a larger part of the coverage for the fiberization, maybe, say, within 2-3 years?
See, I would not like to hazard a guess on this, because this is something which is being driven by the operators. But all we know is that in the advanced markets where 5G has scaled up pretty much, fiberization eventually needs to go to about anywhere between 80%-90% for you know, good end user experience. So I'm sure the Indian operators are going to be covering the inequity quite quite fast, if they have to give a good experience.
Okay. My second question is: if you closely look at the subscribers data released by TRAI each month, there has been a greater addition by Jio each month. So are we witnessing demand of more size from Jio, or is the growth mainly coming from Airtel side only?
I think, this information, I mean, we will have limited input to this. I think it's probably best answered by the operators themselves. We don't have any input on these matters, per se.
Okay. Okay, sir. Thanks a lot. Just one last question, if I may ask, if it's possible to take one more question?
Sure, go ahead.
Are we, I mean, once the demand starts to lower its pace, are we looking at the broader digital spaces like data centers, especially on the enterprise IT side? If the demand for the enterprise 5G will be more on enterprise IT, are we then looking for it, I mean, maybe a couple of quarters later?
I mean, as of now, it's too early to say, I think, but if an opportunity presents itself, we'll consider it.
Are you talking about enterprise 5G? I mean, is that the question?
Yeah. Yeah, yeah. Are you, are you looking at a broader digital space, once the demand for the additional side start, starts to lower its pace, like, say, data centers and everything, something like?
Yeah. So, I mean, if you're asking about additional business opportunities, yes, we are evaluating. I don't want to be very specific this one, but we are looking at, you know, all the opportunities where we can participate as an infrastructure provider. And as well, we'll come and let you know.
Okay. Thanks a lot. Thank you for your time.
Thank you very much, Mr. Joshi. The next question comes from Mr. Arun Prasad from Avendus Spark, Chennai. Mr. Prasad, you may ask your question now.
Good afternoon. Thanks for the opportunity. I have a couple of questions. First one, the receivables. Just, I just want to understand, if the operator is paying the one with the overdue, if he's paying during this quarter, will it be first counted towards past pending payments, and then the provisions is reversed, or will it be counted towards the current invoice? How do we do that?
Well, as far as the settlement is concerned, the payments are basically first accounted towards the old invoices. So, it basically pretty much largely moves on a FIFO basis.
FIFO basis. Okay. Understood. So which means a large part of the reversal on the provisions is because of this accounting type. So whatever they are supposed to pay this quarter or this period, still, it is still not crossing certain threshold limit, it is still counted as a good receivable, right?
Yeah. So the way we provide is anything which is overdue, more than the credit period that's agreed in the MSA, is, as per our current ECL policy, is, provided, in the books. So, if there is any reduction in the receivables because of, better collections, then that really results in or leads to unwinding of the provisions.
Understood. Understood. So if I look at the last couple of years, so far we have, I think, provision close to INR 5,000 crore, even after reversing of this. So at this point of time, what is the kind of levers we have to collect this, apart from, restricting the access to the operator? Do we have immediate levers at this point of time?
No, I don't think, I mean, we are currently working with our customer to see how we can unwind quickly, and we've seen some progress now. I think the idea is to see how we can sustain that and unwind the dues. I don't want to talk anything specifically about any levers per se, but I think that's, we are working with our customers to make sure that we continuously get paid for what we are doing today and unwinding of the past dues.
Understood. And then, secondly, on the co-location business, because 5G is currently basically most operators are rolling out the 5G. But oddly, this is not reflecting in our sharing revenue data either on a per operator basis or per tower basis. This co-location revenue is still not reflecting. Is it very insignificant? Because a few quarters before, when we asked this question, you said that it will take some time to reflect, but it is still not reflecting in this. What we are missing? Can you just guide us?
Yeah. So Arun, I think, the revenue that we report is a sum total of various elements, right? So there is, also the upside coming from the loading. There is, upside in terms of the rollouts that we are doing, but at the same time, there are a few downsides because, if you remember, in the same quarter last year, we had, basically, taken an accounting position with regard to the, lease accounting or the straight lining of, lease rentals with regard to one of our customers. So we have not recognized, those, long-term revenues, based on the Ind AS lease accounting, which obviously, is basically a bit of a drag on the revenue line.
Apart from that, we also have been renewing the towers and the tenancies with our customers with some discounts. So there is also that sort of drag on the revenue line. So basically, there are growths and there are, I'm, I'm assuming you're talking at a per tenancy level, there are upsides and downsides both, and they are sort of offsetting each other.
Yeah. Given there's so many variables, can you give a little bit more disclosure on this front? Going forward, what we should be assuming as a upside from the loading revenue, or this downside will also continue in the upcoming quarters?
Well, like we had disclosed in the past, I think the upside from the loading revenue is broadly in the range of 5%-10%, depending on, you know, how much load is there on account of 5G on each site. So anywhere between 5%-10% is the sort of upside that we are seeing on account of 5G loading.
And on the downside that you spoke about, that some of the downside will also offset this upside going forward?
Yeah. So there is, w e had basically made some disclosures with regard to the renewals, that was almost a year back, so that continues. And as and when more portfolio is coming up for renewal, although bulk of the renewal was done in FY 2023, there is some bit which is happening every year. So to that extent, the same sort of renewal discount is reflected in the numbers.
So what part of the portfolio is still not yet renewed? Assuming that that will renew at the older, at the lower rates. So what part of that is still to renew?
Well, I think, back in FY 2023, we had renewed almost one-third of our portfolio, and thereafter, we didn't have any major bulk renewal in the subsequent periods. But I would say probably anywhere between 50%-60% portfolio will be coming up for renewal in the forthcoming years.
Okay, understood. Lastly, on this linear towers, can you just give me some indication of what is the cumulative CapEx we have spent on this linear tower?
So, I think we will have to really take it offline, Arun. We will basically need to compute that separately because I don't have that number readily at hand.
Okay, no issues. What I'm trying to understand is that, from the operator's perspective, is it as a small cell more advantage as compared to linear Tower, and from a tower company, that is from our perspective, which is more beneficial? Obviously, we'll be working on ROC, but from an RS, from an operator perspective, how it looks first. So that's what we are trying to understand.
So the operators, depending upon their network needs and their network plan, will decide, you know, whether a small cell will fit the need or whether a linear site will fit the bill, because both of them have different coverage characteristics and load-taking capacities. So depending upon the network plan of the operator, they clearly decide. I don't think each is replaceable by the other. It's more from a network demand perspective, as a solution fitment that will, you know, go in there. So I don't think the operators are also blindly trying to put in small cells or the linear sites, because they are more cost efficient.
Okay. And our numbers doesn't need to be, we don't have small cell portfolio, right?
No. Again, first of all, the structure that we provide is given loading capacity that the operator has asked us. In some cases, the operators may be putting up high-powered small cells or the higher, you know, high power BTSs. It's again, as I said, the type of the structures is what we provide to them. What they are putting on top there into those sites is depending upon their network requirement.
Understood. And we only spoke about the linear co-locations. Is the tenancy ratio very different from the macro tower, our macro tenancy ratio, or is it more towards one in the linear portfolio?
The linear tower currently is more towards a single tenancy, and they are, like we had explained in the past also, they are, modular structures. So as and when the second tenant comes with a very small, probably investment, we'll be able to enable the second tenancy also.
Understood. Understood. And then this is geographically spread, or is it more concentrated in urban areas now?
It's geographically spread around.
Okay. Okay, thanks. Thank you very much. All the best.
Thank you very much, Mr. Prasad. Participants who wish to ask question, may please press star one on their touchtone enabled telephone keypad. The next question comes from Mr. Sanjesh Jain from ICICI Securities, Mumbai. Mr. Jain, you may ask your question now.
Hi, good afternoon. Thanks for taking my questions. First, again, on the linear towers, we have seen that a lot of our regional players have become quite aggressive in the linear towers. And my discussion with them, they suggest that they are more agile. They can put up the tower and deliver it in a much lower lead time than the established players. How do we want to protect our market share in the linear towers markets where a lot of regional players are cropping up, who know the geography better, who can who can deliver the structure faster? How are we placed in that market?
Sanjesh, thanks for the question. I think linear towers, when the portfolio started, we probably started a little bit slower, I think, but we have caught up. I think both our commercial offering and execution ability is as competitive as anybody else. And, I think we have ramped up our TSP, third party infrastructure as well to support that. So in all the markets, we are quite competitive, and as you can see from our results, we've been increasing our linear portfolio year on year, and we are equally present geographically, for them. And at the end of the day, one of the things that we offer is the better uptime to the customers, which is, which is a differentiation that the customers have started seeing.
So I believe we will remain competitive, agile, and we'll continue to grab the market share, even in the linear portfolio.
But on the linear portfolio, power is less of a problem because we are talking of more like an urban infrastructure, and I don't think these towers comes with a power solution. When uptime, where is your differentiation there?
I think it's a combination of things. As I said, if you are commercially competitive, if you are able to deliver on time and you can provide an uptime, I think that's the best solution that a customer can get.
Fair enough. Fair enough. Second question on the tower tenancy addition, which looks phenomenally strong. Now, again, going by what the operators are commenting on this side, it appears that FY 2024 could be because these CapEx, and then we may see a material moderation in the addition and tenancy, will take some time from the 5G to prop up. We will have a period of more of a loading growth. Do you agree with this thought process?
Sanjesh, I don't want to forecast on behalf of anybody else. I think, what we are looking at is we currently have an order book that we are executing. I think we expect the order book to remain strong for the coming quarters, and if there is any moderation, we'll deal accordingly. But, as of now, for the next, 2-3 quarters, I, I've not seen, a reduction in the order book, so we will address that, if there is any change or reduction from the operators accordingly.
That's good. Just on the growth side, the growth in the rental revenue is almost 7% plus volume, I think it's 5%. Is that the more single tenancy towers is moderating the growth on the revenue side versus on the EBITDA side versus the revenue growth what we are seeing?
I think, Prasad. So I think, of course, I mean, tenancy ratio is certainly has an impact on the profitability, Sanjesh. So, of course, I mean, if there is higher tenancy ratio, then that will, you know, you know, given that we have a very high operating leverage, that would certainly boost the EBITDA. But I think, talking specifically about this period, I think, you know, apart from the revenue flowing into EBITDA, there are other factors. So there is, basically the provision for doubtful debts that we create, which also has a bearing on the EBITDA. And then there are some seasonality-related things.
So for example, quarter three has, you know, a certain impact from higher rates and taxes, which we recognize on cash basis as and when we get those property and municipal tax bills and so on. So, otherwise, I think, if you look at the underlying performance, I mean, both revenue and profitability are pretty much in tandem.
Got it. Just last question on the reinvestment margins, which continues to remain negative. You have said this earlier also, that you are making efforts towards reducing these losses. Do you see this materially reducing in FY 25, or do you think it will take more time than that process?
So maybe I, I'll just give some color. First of all, on the operational side, as you heard Prachur saying, I think there's a lot of focus, Sanjesh on reducing the diesel consumption. In this year, we've already achieved a pretty sizable, you know, efficiency as far as our diesel costs are concerned. Now, when it comes to energy margin, in a pass-through regime, you know, we basically have a lot of these reconciliation issues with our customers, because of several factors. You know, sometimes there are basically higher costs related to weather disturbances. There are sometimes timing differences in the electricity bills and so on. So we do see these fluctuations impacting our quarterly energy performance. And hence, when it comes to energy margin, I think it's, it's better to really look at the longer period.
I think going forward, all the efforts that we are putting in terms of driving efficiency and lower energy cost, will eventually start reflecting in our energy P&L also at some stage. So we are currently working on it, and hopefully at some point, you know, they will translate into a better energy P&L.
Got it. Got it. Thanks. Thanks, Achyut. Thanks, Vikas, for all those answers and the support side coming to us.
Thanks, Dinesh.
Thank you.
Thank you very much, Mr. Jain. The next question comes from Mr. Pradyuman Chaudhary from JM Financial, Mumbai. Mr. Chaudhary, you may ask your question now.
Yeah. Hi. So, more on the dividend side, how should we really understand, like, now the payments have been regular from your customer, so, can we, should we expect a good, regular dividend payout, or would it also depend on the future outlook for the customer?
So, Pradyuman, I think we have clarified this on the earlier calls also. I think our dividend policy, if you look at the policy, it is linked to the free cash flow of the company at the end of the financial year. Now, within our free cash flow, because of the elevated CapEx cash flows that we are seeing, which is in a way good for the business, because we are also then generating long-term revenues, long-term cash flows and value for the company. But at least within the financial year, it is putting some pressure on the free cash flow. But at the same time, there are many other variables within our free cash flow. So there is basically the collection, the focus on collection of the old overdues, the leverage, et cetera.
You know, at the end of the year, we will take stock of all these things, and we'll see where we land on the free cash flow. We will evaluate the possibility of dividend together with our board members and come up with a decision around that time. As of now, I think suffice to say that the policy is intact. There's no change in our policy.
All right. So basically, just a bit of clarity here. As long as we are able to generate positive free cash flow and the payments from our customers is regular, then there should be a dividend, right? At the end of the year.
I think we'll come back to you.
It would not be.
Yeah. But, but that's the policy, Pradyuman. That's the policy, yes.
Yeah, that's the policy.
All right. Thank you.
Thank you very much, Mr. Chaudhary. Participants who wish to ask questions may please press star one on their touch-tone enabled telephone keypad. The next question comes from Mr. Nikhil Pradeep Deshpande from Axis Capital, Mumbai. Mr. Deshpande, you may ask your question now.
Yeah, good afternoon, sir. Just, you have taken a provision of INR 649 million during the quarter on the bad debts. So this is a net provision or is this a new provision?
Well, this is a new provision, Nikhil. So we have reported the additional provision on the basis of basically whatever has been received. So I had explained this in my commentary earlier. So there was basically there were two effects. There was a recognition of the additional INR 3 billion that we received, because of which there was a reversal of the provision for doubtful debts. And at the same time, there was an adjustment with the interest, which resulted in creation of the provision. So as a result, we have roughly INR 0.6 billion of additional provision in the quarter.
What will be the reversal? Can you quantify that?
So the reversal is the amount that we have collected as part of the backlog overdue, and that has been collected in the month of January. So, but, we have recognized that in our quarterly financials. And because that was provided for earlier, so that has resulted in the unwinding of the provisions.
So can you quantify the reversal?
I said that it's INR 600 crore.
INR 300 crore. Okay. So, currently, what are... What is the and in the finance income, which is INR 5 billion, what portion would be due to the payment of backlogs, and what will be the going a normal financial income?
Well, again, the interest income largely represents the interest that we have collected on the delayed payments by the customer. So, broadly, our interest accounting is on receipt basis or collection basis. So, we keep billing. If there are any delays in the payments, we keep billing to our customers as per our MSA, and as and when we collect those interests, we recognize them. So, I mean, most of these interests, of course, then pertains to the backlog itself, because that is where the interest billing is getting generated.
Okay. So, just for clarity, the INR 3 billion is over and above the monthly billing?
Yeah, that's right.
Thank you. That's all from my side.
Thank you very much, Mr. Deshpande. The next question comes from Mr. Aditya Suresh from Macquarie, Mumbai. Mr. Suresh, you may ask your question now.
Yeah, thank you so much. So, just one question from my side was on the industry structure. Can you give us an update here on the industry structure itself, and, are you seeing any kind of customers migrate towards you? Are your kind of tenancy ratios kind of going up because the third layer is, yeah, the market shares are falling. Thank you.
I mean, Aditya, if I understand your question correctly, I think you're asking from a-
Tower industry.
From a tower industry point of view or a telecommunications?
From the tower industry, yeah. So just from a tower industry perspective, there are Indus, Summit, Brookfield, ATC. We appreciate the issues at ATC. And I guess the question really was, are you seeing migration of tenancies onto Indus?
No, I think, to be honest, I don't think that is anything material per se. I think, our main growth is coming from the new towers that we have been rolling out. So I don't think that there is anything material. I think there are occasional cases where there must be some migrations, but it is not material enough to highlight any case.
Understood. Any further kind of comments which you can provide on the dividend in terms of next steps? I appreciate that, the comment around that we need to see a bit more visibility here on your payments and, more conviction on your free cash flows. But at least based on our modeling, et cetera, the free cash flow improvement compared to last year seems very tangible. So can we, can you speak about the next steps here for the dividend? Any tangible steps, which we can think about?
No, I think as Vikas said, just want to reiterate, I think we have a clear dividend policy. Along with the board, in conjunction with the policy, we'll make the decision at the end of the year, and we'll decide. So I think, I don't think there's anything much to add beyond that as of now, right?
So just to clarify the cash flow point, Aditya, I think, while this quarter, we have shown a good positive free cash flow, but if you recall, we had a delay in the previous quarter. So to some extent, it's basically a rollover effect of that delay in this quarter. Overall, if you look at the nine months, our cash flow is pretty much, you know, being used for the CapEx deployments. So to that extent, I think the pressure continues on the cash flow, even though we are collecting the 100%. Well, coming to the dividend point, as we also explained earlier, I think it's largely linked to where we land at the end of the year, and we are sort of working on the backlog.
We are working on various other things, so we'll see where it lands, at the end of the year.
Thank you so much.
Thank you very much, Mr. Suresh. The next question comes from Mr. Angad Katdare from Samiksha Capital, Mumbai. Mr. Katdare, you may ask your question now.
Thank you for the opportunity. Over the past few quarters, we are seeing a downtrend in the tenancy ratio. Over the long term, what do you think is the sustainable tenancy ratio going forward? Will it stabilize at this level, or can we expect a further call?
So Angad, I think the tenancy ratio, currently, the reason of the downturn that you're seeing is the significant additions that we are currently doing for one of our major customers, which is primarily a single tenant, and that's the effect that you're seeing. And as I told earlier on another question, I think we'll continue to roll out and make sure we get the market share from that customer. So you may see an impact of that in the tenancy ratio. I think it's difficult to predict exactly where that's going to end, depending on the rollouts. But yeah, I think that's the reason why you're seeing the drop is because of the rollouts currently are happening on a single tenant basis.
Okay, and one small question, an observation. The co-location exits during the quarter is 655, but we have not recognized the exit revenues for the principal-based character. Throw some light on that. Am I missing something?
Yeah, so Angad, I think these exits that you see are business as usual, part of the business, and they are within the permitted exit that we have in our MSAs. The exit charges don't apply on these.
Okay. Got it. That's it. Thank you.
Thank you very much, Mr. Katdare. We do have a follow-up question from Mr. Pradyuman Chaudhary from JM Financial, Mumbai. Mr. Chaudhary, you may ask your question now.
Thanks for the follow-up. So, one, you just... To one of the questions, you just said that declining tenancies is because of the new towers that are coming up, which are being set up primarily for Bharti. So, for an existing portfolio, are we seeing stable tenancies, or even there, we are seeing that the one of our customers is actually giving up some of the towers?
I think it's broadly stable, I think. I think that the other portfolio is broadly stable. There's nothing to add to this.
Yeah, I mean, the exact what we were talking about earlier, the 655 is basically from the existing portfolio, so it's a very small number compared to the total portfolio. So it doesn't really impact the tenancy ratio on the legacy portfolio.
Understood. And one was on the return profile for these new towers based on a single tenant. What would be the exact return profile, a ballpark, maybe?
Ballpark, we have shared this. I mean, it's probably, I would say, low to mid single digit sort of a return profile for most of our new portfolios. In some cases, it could be high single digit as well, but broadly, low to mid double digit.
Understood. Understood. Thank you.
Thank you very much, Mr. Chaudhary. Participants who wish to ask question, may please press star one on their touchtone enabled telephone keypad. The next question comes from Ms. Saloni Shah from Soham Asset Managers, Mumbai. Ms. Shah.
Hi, am I audible?
You may ask your question now.
Yes, Ms. Shah.
Hello, am I audible? Yeah, just one question. I want to thank you for the opportunity. I wanted to understand if the telecom operators take a price hike in both voice and data, so how we, we as a tower company, will benefit from this, in terms that will it translate into better tenancy terms for us during the new year? Because,
I think it's Saloni, I don't think I want to comment that right now. I think we'll see how the commercial situation is, and at that time we'll make a call while we remain competitive and make sure the market share remains where we are. I think it's a question that is quite speculative at this point of time.
Okay. Okay, sir. Thank you.
Thank you very much, Ms. Shah. The next question comes from Mr. Ronak Himatramka from RoboCapital, Mumbai. Mr. Himatramka , you may ask your question now.
Yeah. Am I audible?
Yes.
Yeah. So I want to ask, like, how is the impact of Starlink coming to India on our business? Like, is it a threat to us or will it kind of, benefit and it would increase the reach of the towers and all these things?
Yeah, Mr. Himat Ramka, I think, we've said this in the past, is all this, satellite connectivity companies that are coming in, whether it is Starlink or, or the other competitors to them, it's only gonna provide, complementary services to the telecom services that there are. And largely, as of now, into uncovered areas, because, you know, transmission networks, are very difficult to reach out into some of those places, and the satellite provides primarily the backhaul connectivity. So we don't see that as, a threat to the tower, requirements, from the operators, at this stage at least.
Cool. Got it. One more question is regarding the recovery from the Vodafone. How are we seeing this? Like, we have seen some recovery in the provisions, but how we see it going forward?
So again, Ronak, as I've informed this call earlier as well, I think we are working with our customers in terms of making sure that we are getting paid, and we have a recovery plan for the past dues. So I think, I think that's the basis of our engagement with our customers, and we'll see how, how things go forward. But I think, a payment of 100% and whatever we can recover is the plan that we are currently working on. So I think, I would expect, this to continue.
Okay. Got it. Best of luck for it. That's it from my side. Thank you.
Thank you very much, Mr. Himat Ramka. Due to time constraint, I would like to hand over the call proceedings to Mr. Prachur Sah for the final remarks.
Thanks, Wanda. In summary, our strong operational and financial performance are a testimony to our inherent strength as a leading player in the passive infrastructure space. The third consecutive quarter of record tower additions, underpinned by network expansion of our major customer and us being a success partner, has been a pleasing aspect. We expect this rural expansion to continue in the near term, to be supplemented by 5G rollouts that aid both in terms of new additions and loading revenues. We believe there are enough growth levers for us in the near future, and we are well positioned to capitalize on these opportunities in a sustainable manner. I thank you all for joining the call. Have a good day.
Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to audio conference service from Airtel, and have a pleasant evening. You have been dropped from the conference by the chairperson. Bye!