Good afternoon, ladies and gentlemen. I am Rithik Jha, the moderator for this conference. Welcome to the Indus Towers Limited second quarter ended September 30, 2025, earnings call. For the duration of the presentation, all participant 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-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 now hand the conference over to Mr. Managing Director and CEO of Indus Towers, Mr. Prachur Sah. Thank you, and over to you, Mr. Sah.
Thank you, Rithik Jha, and a very warm welcome to all participants. Joining me today are my colleagues, Mr. Vikas Poddar, CFO, Mr. Tejinder Kalra, COO, and Mr. Dheeraj Agarwal, Head Investor Relations on the call. I am pleased to present our business performance for the quarter ending on September 30, 2025. I'm happy to report that Q2 witnessed a firm uptick in tower additions compared to last quarter, driven by our ability to capture a significant share of rollouts of our customers and transition their network to our portfolio. This underscores our agile approach and trust our operators place in our network's reliability and delivery speed. Before delving into the business performance, I want to take a moment to appreciate the exceptional efforts of our teams on the ground.
The quarter witnessed one of the most challenging weather conditions, including devastating floods due to a prolonged and unforgiving monsoon season. Our field force braved the extreme weather, ensuring uninterrupted connectivity in the regions of Punjab, Jammu & Kashmir, and Assam, amongst others. During the quarter, we also deployed sites at Indian Army forward posts in the Tawang sector of Arunachal Pradesh at an altitude of over 12,000 ft and 12 high-altitude telecom sites across Ladakh's most critical zones. This reflects Indus Towers' commitment to nation-building by way of strengthening national security, disaster response, and connectivity in some of India's most remote and geopolitically sensitive regions. On the regulatory front, the government continues to take steps to facilitate the swift deployment of telecom infrastructure across the country.
The Ministry of Power is in dialogue with the state governments for the installation of prepaid smart meters at telecom sites on priority, which would help boost efficiency, reduce costs, and enable more granular customer billing at scale. Regarding 5G, the total 5G base stations have now crossed the 500,000 mark. While the pace of 5G rollouts has tapered over the last few quarters, ongoing deployments continue to support our loading revenues. As adoption deepens and data consumption scales up, this could drive the demand for additional sites for capacity expansion and maintaining high network quality. Backed by strong ongoing deep customer partnerships, Indus remains well-positioned to capture these evolving opportunities in the 5G space. As per the latest trial report, the total 5G subscription base in India stood at over 322 million by the end of June 2025, growing by 77 million in Q1 FY 2026.
The demand for data in the country remains unabated, driven by the rapid adoption of 5G and the transition from 2G to 4G. For the quarter ending June 2025, as per TRAI, total data consumption and average monthly data usage per user grew by 16% and 13%, respectively. According to TRAI, 5G usage alone grew 17% quarter- on- quarter, accounting for 32% of the total data traffic in Q1 FY 2026, up from 30% in Q4 2025. As data usage continues to accelerate and 5G becomes increasingly mainstream, the demand for reliable and future-ready tower infrastructure remains robust. The ongoing surge in network traffic reinforces the need for deeper coverage and higher capacity, creating sustained opportunities for passive infrastructure providers. Our strong operational expertise and proven execution capabilities mean that we are well placed to support this digital expansion and create value from this rapidly evolving ecosystem.
Moving on to operational performance, we recorded robust tower additions during the quarter, driven by our ability to garner a major share of the customer's rollouts. Our colocation additions moderated due to slower rollouts by a major customer. We added 4,301 macro towers and 4,505 corresponding colocations during the quarter, translating into a year-on-year growth of 11.5% and 9.6%, respectively, in the tower and colocation base. As a result, total macro tower and colocation base stood at around 256,000 and 415,000, respectively. Our industry-leading tenancy ratio remains stable at 1.62. The overall colocation base of leaner towers saw an addition of 28 colocations during the quarter to close at approximately 14,000, including leaner towers. Our net colocation additions stood at 4,533 in Q2. I will now share an update on the key KPIs.
In line with our plans to reduce diesel consumption by transitioning to cleaner sources of energy, we added 3,900 solar sites during the quarter, taking the overall base close to 36,000. With regards to diesel consumption, we saw an increase of 3% year-on-year in Q2 FY 2026 compared to the 10% year-on-year increase seen in Q1 FY 2026. The prolonged monsoon resulted in higher electricity outages, hence the increase in diesel consumption. Despite the extreme weather conditions, our field force's agility and commitment helped us deliver an uptime of 99.97% approximately in Q2 FY 2026, bettering our already high uptime of 99.955% in Q1 FY 2026. Let me now provide an update on the four core pillars of our strategy: market share, cost efficiency, network uptime, and sustainability.
On market share, we reinforced our leadership position with key customers this quarter, driven by our ability to execute reliably, deliver at scale, and uphold the highest service standards. Our unwavering commitment to quality, safety, and responsiveness has remained a key differentiator, enabling us to capture a sizable portion of customer rollouts and strategic deployments. In addition, with our improved service delivery and value creation, customers are moving some of their existing sites to Indus . We saw continued momentum in our IBS deployments during the quarter, helping us maintain our position as the market leader. Driving cost efficiency remains a key priority to ensure we effectively manage the growth in towers and become one of the most efficient tower companies in the world.
This is being done through redefining operating processes, upgrading site infrastructure with IoT-based devices, enabling two-way communication to the sites, and driving process automation through digital tools. This is aimed at not only reducing costs but to increase productivity and improve the quality of service to the customers. Additionally, as highlighted earlier, reducing our dependency on diesel to lower our energy costs remains a key priority for the organization. The transition to cleaner sources of energy continues to be augmented through electrification of non-electrified sites, deployment of energy storage solutions, and increased deployment of solar sites. Our solar site count at the end of Q2 stood close to 36,000, with approximately 3,900 sites added during the quarter. On CapEx, we have further strengthened our efforts to enhance cost discipline and predictability across tower deployments. We are driving significant efficiency improvement with tighter controls, improved contracting norms, and sharper execution planning.
Our efforts continue towards transition to lithium-ion from leaders in batteries, which offer a total lower cost of ownership. Overall, these efforts are translating into tangible improvements in cost structure and operational leverage, positioning us well to sustain margins and improve our long-term competitiveness. On network uptime, which is a barometer of our service reliability and differentiates us in the competitive market landscape, continued improvement in uptime is paramount to us to deliver exceptional customer experience. We delivered an industry-leading network uptime of 99.965% in Q2 amid the adverse weather conditions, and all of this is done by our dedicated frontline staff, use of digital tools, and our ability to have tighter controls over turnaround time.
Talking about ESG, which also remains a key focus area, we are pleased to have signed the MOU with IIT Madras for research and standardization of glass fiber reinforced polymer as an alternative to conventional steel structures, which is a greener and more sustainable material. We continue to add solar sites in line with our plans to transition to cleaner sources of energy. On workplace safety, we furthered our Suresh Shavir campaign to strengthen the safety culture across the organization by sharing best practices. On workplace diversity, we are pleased to see our gender diversity improved to 15.8% in Q2 FY 2026 from 14.3% in the same period last year. Our initiatives aimed at creating a more inclusive and conducive working environment were recognized, including one of the best organizations to work 2025 by ETNOW and the most preferred workplace for women 2025-2026 by EY India, India Today, and Business Standard.
Now moving to CSR, as part of our flagship program section in partnership with Bharti Heritage Foundation, we have supported over 150 Satyabharti schools across multiple states. With a strong focus on holistic education, digital inclusion, and community development, the foundation has enabled us to positively impact more than 30,000 students. Additionally, our Digital Transformation Van initiative is now operational in 12 states. As part of our other flagship program, Pragati, we provided disaster relief to more than 4,500 families in the flood-affected areas of Punjab, Himachal Pradesh, Jammu & Kashmir, and Uttarakhand. Through these flagship programs, we managed to touch over 14 million lives by Q2. We take great pride in being awarded the Mahatma Award for CSR Excellence in Sustainable and Responsible Business.
On the governance front, we have now included key ESG parameters in the RFP process for our partners, giving us greater visibility of the ESG practices of our partners and driving it across the value chain. Our efforts on ESG agenda are being recognized, as evidenced by our ESG score computed by the rating agency CRESL, improving from 55 to 57 over the last financial year. Let me now provide a context on our Africa expansion. As you are aware, we have announced our foray into Africa as part of our long-term growth strategy. We will start with the three countries, namely Nigeria, Uganda, and Zambia. We strongly believe that Africa is the venture where India was a few years back, providing solid growth opportunity for both telecom operators and tower goers.
We intend to replicate Indus Towers' proven operating model by building high-quality, cost-efficient infrastructure tailored to local conditions while ensuring best-in-class service reliability for our customers. Our expansion plans come at a critical juncture to leverage the strong growth drivers, Bharti Airtel's deep-rooted position across the markets, and importantly, visibility of anchor customers from day one. We will begin at a modest scale by building new towers, understand the on-ground operations, build a solid operating model, and take the learnings to other markets over time. Given the strong management pedigree and track record, we are confident that this expansion will be value accretive over the long term. I would now request Vikas to take you through our financial performance for the quarter ending September 30, 2025, and I look forward to your questions. Over to you, Vikas. Thank you.
Thank you, Prachur, and good afternoon, everyone. I'm pleased to present our financial results for the quarter ending September 30. In the quarter gone by, we managed to deliver robust tower additions, which have aided our financial performance. Moving to financial performance for quarter two FY26, total revenues stood at INR 81.9 billion, growing by 9.7% year-on-year. Core revenues from rental were at INR 52.4 billion, up by 11.3% year-on-year, driven by strong tower additions and acquisition of towers in March this year. On a sequential basis, our reported gross revenues and core revenues grew by 1.6% and 2.6%, respectively. Along with the tower additions, certain reconciliation benefits also aided the revenue growth in this quarter. In terms of profitability, reported EBITDA was at INR INR 46.1 billion, declining 6% year-on-year and up 5.1% quarter on quarter.
The EBITDA margin was lower by 9.4 percentage points year-on-year and 1.8 percentage points higher quarter on quarter at 56.3% in quarter two. I would like to remind you that quarter one FY2026 and quarter two FY2025 included write-backs of approximately INR 0.9 billion and INR 10.8 billion, respectively, related to the collection of overdue receipts from a major customer. Similarly, the customer cleared additional dues amounting to INR 2.1 billion in quarter two FY2026. Adjusted for the write-backs, EBITDA was up 14.9% year-on-year and 2.4% quarter on quarter. Our sharp focus on driving cost optimization and productivity improvement has aided our margins. Our energy margins were at -4.8% in quarter two compared to -4.0% in quarter one and were flat compared to quarter two of last financial year. Please note that, as highlighted by Prachur, quarter two FY2026 saw a prolonged monsoon season.
This resulted in higher diesel usage at our sites in order to maintain network uptime, thereby affecting our margins adversely. Reducing diesel consumption continues to be one of our key priorities, which we are driving through the transition towards cleaner sources of energy as well as the deployment of energy storage solutions. Our profit after tax stood at INR 18.4 billion, declining 17.3% year-on-year and growing 5.9% quarter- on- quarter. Adjusted for the aforementioned one-offs, the profit after tax grew by 18.6% year-on-year and 0.8% quarter- on- quarter. Our return ratios, despite declining sequentially, remain strong, with a reported pre-tax return on capital employed of 26.3% and a post-tax return on equity of 29.0% over the past 12 months. The decline is largely attributable to movement in profits due to a difference in collection amounts against the past dues from a major customer.
We generated a free cash flow of INR 3.0 billion in quarter two. The sequential decline is on account of an increase in CapEx and a timing gap in collections. This timing gap also led to a sequential rise in trade receivables. To conclude, quarter two has been another quarter of steady progress and disciplined execution. Our financial performance remained resilient, supported by strong tower additions and continued improvement in operating efficiency. During the quarter, we also took a meaningful strategic step with the announcement of our foray into Africa, a move that positions us to leverage our scale, expertise, and customer partnership across fast-growing markets with long-term potential. We continue to sharpen our focus on cost optimization, automation, and AI-led efficiencies to strengthen our foundation for sustainable growth.
With structural industry drivers such as rising data usage, 5G expansion, and sustained network investments firmly in place, we remain confident in our ability to deliver consistent value to all our stakeholders. With that, I'll now hand over back to the moderator to open the floor for questions. Thank you.
Thank you very much, sir. We will now begin the question and answer interactive session for all the participants who are connected to audio conference service from KORUS. Due to time constraints, we would request you 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 a question may press star and one on the touch-tone-enabled telephone keypad. On pressing star and one, the participants will get the chance to present their questions on a first-in-line basis. To ask a question, participants may press star and one now. The first question is from the line of Sachin Salgawkar from BOFI. Please go ahead.
Thank you for the opportunity. I have two questions and a small clarification. Question number one, it would be great to understand the growth outlook going ahead. It appears that a large amount of 4G and 5G rollout is behind. Prachur, in your opening comments, you did mention that we should see market share gains versus, you know, and the way I concluded it, versus, let's say, new rollout coming from your incumbent operators. A related question out there is your general thoughts on expansion in Africa. Is it because for diversification away from India or for better growth? Contribution from Africa, even after, let's say, three to five years led by organic expansion, will be too small given the size of India. Is an expansion into Africa an organic strategy or an inorganic strategy also?
Okay. Let me answer the two questions. The first question is from a growth outlook point of view. While we don't make future statements, you know what we are seeing across the customers. I think the layer addition is still happening, as you will, you know, as you saw in the results as well. The upgrade CapEx was, or the growth CapEx continues to be there. From my perspective, the order book still remains strong, both on new towers, tenancies, and it's a mix of all the customers, not just one customer. I think for the growth outlook for the next three to four quarters, we remain confident that it is going to remain robust in India.
On the second part, when you talked about expansion in Africa, whether it's organic or inorganic, as I mentioned earlier, the initial part is organic growth, where we'll be entering and making new towers, expanding or understanding the local market. If an opportunity comes at the right position, the inorganic part may be considered, right? The overall Africa strategy is not a diversification business. It's our tower business. That's our core strength. We want to leverage our core strength to enter a strong market with an anchor customer where we can create value for our customers and show the differentiation that we have in building low-cost towers, delivering better service quality, improving energy efficiency, and that will create opportunities for us to build new towers with an anchor customer, get other tenancies from other customers. If the right opportunity comes, look at an organic growth.
The priority initially is to start building new towers.
Thank you. Very clear, Prachur. My second question is, with the Supreme Court clarification now on Vodafone Idea, we should logically expect some kind of a relief on AGR. Obviously, you know, Indus was not paying dividends because one of the reasons for holding back was, you know, the clarity on AGR on VIL. The question out here is, you know, whenever the clarity comes on AGR, and hopefully soon, should we expect any cash return or dividend almost immediately, or should we wait for the end of this fiscal year? Could we see something around December quarter in terms of cash returns, or we would ideally like to wait for the end of year or March quarter, even though the visibility from the government on Vodafone resolution comes earlier than expected?
Sachin, I think I would not like to assume the clarity timing. I think what has happened is a good development for the industry in general. We welcome that support. I think as and when the clarity comes, it'll help us make the right decisions. As of now, as I'd informed in the previous quarter, the board will consider and is committed to distribute the cash to the shareholders. The timing still remains end of the financial year in Q4, right? If anything changes, we'll keep you posted.
All right, Prachur. Just to clarify, this is the only thing which is holding the company from giving dividends, right? Are there any constraints, any other constraints out here?
Sachin, as I mentioned in the previous quarterly call as well, I think it was one of the constraints or one of the factors that was taken into account, right, along with the CapEx that we are spending for growth as well. As I mentioned last time as well, the board is committed to consider the distribution. I think as of now, the timeline still remains the end of the financial year, and we'll keep you posted if anything changes.
Thank you. The last clarification I wanted is we saw a write-off of one write-back of INR 195 crore in provision for doubtful receivables. Vikas, is it fair to say that the entire write-back has happened and going ahead, we should not see any further write-back?
Yes, that's right, Sachin.
Perfect. Thank you so much.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, thanks. Thanks for the opportunity and good afternoon all. A couple of questions. First, on Africa, again, touching upon it, Bharti Airtel did sell a significant amount of their towers way back in 2013 to 2015. The view at that point of time for us was that we want to keep ourselves within India. Any particular change in what has happened in the industry which has made us revisit the factor that now we want to get back to Africa? At that point of time, we were completely not looking at it, and hence, Bharti Airtel sold their significant portion of the portfolio. What has changed now?
To be honest, I can't comment on the context that was almost 10 years ago. I think what we can say today is that we are currently at a point where Indus Towers has established itself as the leading tower company, and we are currently at a point where we can offer solutions to the customers with a very different proposition. Even the Africa market has evolved quite a bit, and there's a lot of growth opportunity that we are currently seeing. With an anchor customer being present there, I think that gives us the ability to step into a growing market, understand it, and then take strategic steps to expand further, including tenancies from other customers.
I think it's a very different situation than what it was in 2015 and where Indus Towers is and where the Africa market is, and the fact that we're going to get an anchor customer from day one. These are the points, and as eventually today's Indus Towers' ability to expand, given where we are in the balance sheet, I think we have the ability to take up this opportunity with ambition.
Got it. One follow-up question there. If we look at the Africa market itself, the CapEx per tower at least historically has been quite high, upwards of $200,000 per tower, and so will be the rental. How is the economics? How is the competitive scenario, particularly in Nigeria, which is the largest market and we are entering that initially? Who are the competition? We are a late intender, right? It's a decently penetrated market. How are we looking at this as a growth strategy from here?
Yes, I think this is something that we will have a better update three to six months down the line as we go into the market. I think the first comment that you mentioned is that we will enter this market with an ability to make a difference on how we can reduce the cost per tower, improve the uptimes, and manage energy better. That will be our value addition to be more competitive in these markets. Our ability to invest and grow and put up new towers is what our strength is going to be. I think once we create that differentiation and the details that you mentioned in terms of what the strategy is going to be, that's going to be put in place over the next three to six months, and we'll give more concrete answers at that point of time.
Overall thinking is to add value and be a differentiator in that market so that we can be a leading player in Africa.
Got it. Got it. I have one last question. Sorry for squeezing in it, but this will be last on Africa by me. It's always been an independent tower co kind of a market there. If you look at largely operator-driven tower co companies, it hasn't been there. We will be first in that sense that we will have both telco and tower co. In that way, it's not purely an independent tower co. Do you think that can be an initial bottleneck in terms of convincing beyond an anchor customer?
I don't see it that way. I think the fact is, we are getting an entry because we'll have an anchor customer. That is the first advantage that we have. At the end of the day, all customers are looking for a tower company that is going to add value. If we are able to create a differentiation in terms of what value we can add in terms of the cost per tower, uptime, and energy efficiency, that is what eventually is going to get the customers from the tower, not whether it's having an anchor customer or something like that. I strongly believe that if we can create that differentiation, the other customers will come onto the tower as a tenant.
That's clear. One last question from my side. On the maintenance CapEx, Vikas, in the last couple of quarters, it has gone up from INR 250 crore-INR 300 crore per quarter now to INR 500 crore-INR 550 crore per quarter. What has changed in that?
Like I had explained last time, one is, of course, the portfolio is aging. We need to keep investing in tower strengthening and tower maintenance and so on. Like I had mentioned in the previous quarterly call also, I think this will continue for some quarters while we are undertaking all the strengthening activities on our portfolio. Two, like I had said, we are also sort of transitioning to higher performing batteries like the lithium-ion and so on. To that extent, that transition will also have some cost in the couple of quarters.
Got it. Got it. That's it from my side. Thanks, Prachur. Thanks, Vikas, for all those answers. Best of luck for the coming quarters.
Thank you.
Thank you. The next question is from the line of Vivekanand S. from Ambit Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity. Some bookkeeping questions. When I look at your energy margins now or energy under-recoveries that you'd report, those are consistently now higher, say, at INR 100 crore-INR 125 crore on average. Previously, they used to be, say, in 2023 or in 2022, they used to be much lower. Directionally, what has changed that has caused these under-recoveries to balloon? That is question one. The second question, I think you, in the opening remarks, you said something about receivables increasing due to a timing gap in collections. Could you elaborate on that? Relatedly, in the opening remarks, you also said that there were some reconciliation revenues that led to higher organic growth. If you could quantify that also. Those are my questions on the accounting side. Thanks.
Sure. First of all, I think on the energy, while you're looking at the absolute, Vivekanand, it is also important to bear in mind that our business volume and the number of towers, etc., are also growing, right? To that extent, the absolute numbers will, of course, grow. One thing which is very important to note is if you look at the H1 of last year and H1 of this year, certainly there is an improvement. We had about 5.2% in the H1 of last year, and we have about 4.4%. We have improved by close to a percentage. The other important thing to bear in mind is the weather disruptions and the sort of monsoon effect, etc., are also worsening year- on- year, right?
This year, for example, in many places, we have seen much prolonged monsoons, and as a result, a far bigger impact on our infra, which causes us to spend more on energy to maintain the uptime and so on. To that extent, I think while the management effort continues to be to reduce diesel and improve the margins and so on, and which we are seeing from a year-on-year perspective, in absolute terms, it's very difficult to compare because the volume of business is also growing. On the receivables, I think, like I said, it is a timing gap. We have some agreements pending because of which the payment has got delayed a bit. We do expect the receivables to unwind in this quarter. It's a bit of a timing issue that we are seeing.
The reconciliation one-off is basically, again, a bit of a business as usual for us because whenever there are some delays because of any reconciliation issues, we do have a very conservative accounting. Once those reconciliation issues are sorted out, we do recognize those revenues. We had roughly 0.8 percentage point one-off in our revenue numbers in this quarter.
Okay. My last question is on the other expenses. I know the breakup of the other expenses is reported annually, which comprises your rates and taxes, legal professional charges. That number, if I strip out the impact of provision reversals, it's been trending lower this year. Are there any one-offs here, or is this some optimization that you've undertaken? If so, then please elaborate on what those measures have been and how we should think about the other expenses going ahead. Thank you.
The other expenses this year in both first quarter, second quarter, and overall from a six-month perspective, you will see it's lower year- on- year. There are various factors, but two major reasons I would like to call out are, one, of course, there is basically a decrease in the rates and taxes that we pay. Two, there is also a very concerted effort on driving various efficiencies within our business, which is reflecting pretty much in all lines, not just the other OpEx, but other OpEx obviously has those advantages as well.
Why are your rates and taxes reducing?
It's basically a matter of demand, right? I mean, as and when we get the demand and we pay the demand, we do recognize. Sometimes it's a matter of not getting those demands.
Okay. Got it. Thank you.
Thank you. The next question is from the line of Pranav Shastri here from MK Global. Please go ahead.
Yeah, hi. Thanks for the opportunity. My question is regarding the Africa business foray. There have been some issues intermittently for Nigeria regarding dividend upstreaming from that geography. All these geographies also have a fairly high currency volatility. How do you plan to hedge for these? Clarity on that will be useful. Secondly, can you give some clarity on where the CapEx is going? Because if I look at the maintenance CapEx, it is not what is in stock. It is the other, the growth CapEx, which is sort of in stock. What portion is actually towards the new tenancies or towards the batteries or towards the energy initiative, I would say, in that sense? Some color on that will be useful to get a growth dynamics in those departments.
Thanks for the bile. I answered the Nigeria question and then asked Vikas to talk about the CapEx part. On the Nigeria question, as I mentioned earlier, I think Pranav, it's a very initial stages to give you the answer. The good thing is, as I mentioned to you earlier, we are going with an anchor customer that has been there for quite a long time, and they have understood the market, the currency fluctuations, etc. I think that will give us an opportunity to understand and not take undue risks, but that is at the same time expand our portfolio there. We will leverage Airtel's presence there and see how we can reduce or mitigate our risks that you just mentioned. However, it's a little bit early in terms of what the structure of MSA, etc., is going to be.
We'll keep you informed as we make this strategy more robust once we visit the ground, understand the tower structure, the tower design, and then we'll come back to you on what is going to be the way to mitigate the risk in Nigeria specifically that you had mentioned. We are cognizant of the risk that you have mentioned. Maybe CapEx.
Yeah. On the CapEx front, the increase in CapEx, apart from the maintenance that you're seeing, is again, if you look at the rollout numbers, our rollout numbers itself is higher by about 1,800 in this quarter. That obviously has led to a higher CapEx in quarter two. Apart from that, there are basically upgrades relating to 5G and additional battery banks and so on, which has also resulted in higher CapEx outside the maintenance CapEx.
Largely, the CapEx related to battery is not part of the maintenance CapEx. It is part of the growth CapEx.
I think so. There are, I think, upgrade CapEx. Battery CapEx comes in two places. Once it comes in maintenance, which is a regular replacement CapEx. However, there are upgrade CapExes, which include battery, solar, layer additions, which is at the request of the customer, where the customer wants us to add infra on our site that results in a revenue for us. When Vikas is talking about growth CapEx, this is all customer-driven CapEx.
Okay. This should sort of start yielding better energy margin and, of course, support growth over a period of time. That's how we should see this.
I think growth for sure. I think it'll impact the energy cost. I think energy margin has multiple other factors, but definitely reducing the energy cost and uptime in terms of offsetting the diesel expenses would definitely be a factor.
Okay. One small follow-up on the Africa business. What should be the tentative timeline for Indus Towers to roll out towers in Africa? I mean, are we looking at, you know, three months, six months timeline for the rollout, or it could well get into 2027?
I think, again, as I said, Pranav, as part of the practice, we had given this comment in the last quarter. I think the work is in progress. Of course, our objective is to do as early as possible, but there are certain administration things to take care of, licensing and entity setup, etc. I think our estimate is anywhere between three to six months. I would not hold on to it, and we'll keep you posted as we progress. Anywhere within three to six months is what we are targeting from today.
That's it from my side. Thank you so much for your answers.
Thank you. The next question is from the line of Arun Prashad from Windus Park. Please go ahead.
Good afternoon. Thanks for the opportunity. My first question is once again on the energy margins. If I look at the, because you explained how things have changed between first half to first half, but directionally, if we take performance in the last 10 years, there were three phases. If you see till kind of say FY2019, 2020, we had a positive energy margin, sometimes as high as 5%, 6%, 7%. Then something has changed in FY2021. It became negative, and it was hovering around 1.5% to 2.5% between 2021 to 2024. Now, suddenly, we are again at, in 2025, we are at a minus 4.5%, and we are seeing some kind of a small decrease from that bottom. What happened between these phases? There were these diesel issues 10 years ago as well. Reconciliation issues, again, it was there.
Even if you take a decadal view in the last, again, I'm not asking for the forward guidance in the last 10 years, we are not able to understand this kind of a change in the energy margins.
Arun, first of all, I think that's a very interesting question. From a very long-term perspective, the way we charge the customers for energy has also changed. From a very long-term perspective, we used to be in pass-through originally. Later on, we shifted to a fixed energy model for a few years. Subsequently, we moved back to pass-through. Today, we are in a situation where we are in a bit of a hybrid. We are in pass-through with some customers, fixed energy with some customers, and so on. One is, of course, the model itself, the operating model in energy itself has undergone a lot of changes from a long-term perspective.
Two, I think why things have worsened in the last, if I take a four to five-year view, obviously, all of us would agree that the weather disruptions have become much more severe in the last four or five years, right? It's not the same anymore. Three, I think the volume of sites has also gone up. We have built far more towers in geographies where the EV availability or the grid electricity availability is very challenging, right? We have penetrated into deep rural areas in very difficult terrains where the grid availability is a bit of a challenge, right? The dependency on diesel is far bigger in those areas. From a very long-term perspective, I think there are various factors that have caused this sort of a trajectory.
What we can assure you is that, through renewable and through our investments in storage solutions and so on, the management is very, very focused on driving efficiency in this area. The customer is also very interested in seeing a lot of efficiency in the energy area because eventually, it hits their P&L also. Directionally, I think while from a long-term perspective, things do look a bit severe, if I take a 12 to 24-month view, things are improving. Directionally, I think we are heading in the right direction.
Okay. You attributed this to three parameters. One is the pricing model, pass-through versus FCM. I think, fairly, we do have a control over that. Those are all our controllable things under what we can do or what we cannot do. Weather, definitely, we can't do anything except management. The third is the grid availability. Except for the weather one, the other two things are in our control. Ideally, it should have been priced in our tariffs or in our rate cards. Are we seeing that it has not happened in the same so far? Is there any chance that this can change in the near future?
I don't think so. I think it's not that straightforward. First of all, I don't think, besides weather, grid availability is entirely in our control. We consume the grid, but we don't so much control the grid availability. From an engagement from the customer point of view on the rates, it's a regular engagement that we do. Whenever we have an opportunity, we do have the discussion with the customers regularly to see how we can improve our commercials with them, and that is an ongoing effort. I think that's a factor that is very well understood and taken into account every year when we negotiate.
Okay. To simplify our understanding, if you convert all your sites into, say, solar, or if you talk about one single site, if you convert into solar, this energy margin for those solarized sites, has it been positive or how has it been so far in the last two years' experience?
See, obviously, a site, first of all, a site cannot run 24 hours solar. I think there is always electricity and storage and diesel required as we. I think that topic is not that straightforward to do a linear extrapolation on that one. In rural areas where grid availability is challenged, despite solar, you may still have a combination of site, which is solar plus electricity, solar plus electricity plus battery plus DG. I think there's a different combination of sites. Obviously, as you bring it more renewable, right, as you have a site which is running more and more on solar and less dependency on other solutions, the sites definitely have a better margin than the others, right? I think it's natural that's what's going to happen. That's what the case is.
It is not that, you know, in a rural area, you will just have a solar solution on a given site because it cannot do a 24-hour generation.
Just one more quick question. What percentage of sites so far, whatever we have spent, is already solarized or some form of solar plus base?
As I mentioned in my commentary, there are about 36,000 sites which have solar solutions available on them.
Roughly 10%.
Okay.
Right.
15%.
Okay. Second question on Africa. You mentioned various reasons why you would add value to the customer. Our understanding is that tower as a technology is at a fairly matured stage. I mean, there is not much one can do, and largely, it's attributed to their operational discipline and the scale. Obviously, extracting the leverage on the brown fork. How do we think that, why do we think that the existing incumbents do not have or master this, and somehow we will be able to do it and win customers or add value to the customers? Some understanding on this will be much better.
Arun, I think, you know, if you see Indus Towers, you know, if you see our portfolio, how we've expanded over the last two to three years, the scale of expansion that Indus has done, I think very few, if any, tower companies have put up that many towers in the last few years. That has given a deeper understanding on how to leverage the tower construction, the materials, vendor relationships in terms of what procurement we do. In that sense, I think we are quite confident there is a value addition to be done in the cost per tower when it is being built, right?
Of course, with what we are doing in India with the scale that we currently have in terms of both operational efficiency, running the towers through a tower operating center, and having a better electrical infrastructure that we have learned in India, we believe, based on our estimates and our feedback and currently the ongoing field visits in Africa, that there is a value addition to be had. The rest, as you said, we are going to go and find out on the ground and see how we can make it happen in reality on the ground. I think we remain confident that there is a value addition to be added.
Sorry to interrupt. May we request Mr. Arun to please rejoin the queue? We have participants waiting for the turn.
Sure, thank you very much.
Thank you. The next question is from the line of Saurabh Handa from Citigroup. Please go ahead.
Yeah, thank you for the opportunity. Just on Africa, once again, a couple of questions. Firstly, as far as unit economics are concerned, previously in India, you've said for single tenancy towers, the return on capital tends to be typically in the low to mid-single digits. What would be a comparable number in Africa, ballpark?
I think it's a good question. I would give us, as I said, once we get to a point where we start discussing the emissions with the customers, I will come back to you in terms of what returns we are going to expect. It is not going to be determined by what India does. It is going to be determined on what the competitive landscape is out there and what makes sense for our business to expand. I think we will come back to you in terms of what return profile we are going to look once we are closer to agreeing the emissions with the customers.
Okay. Directionally, do these tend to be better than what you see in India? I mean, that's the sense that we had, but I just wanted to double-check that.
I would hope so. I would not comment on it right now, but in general, depending on once we understand, and it may be we'll have different emissions for different countries. It will depend on the opportunity that we'll have to have additional tenancies and the tenure of the towers. That will determine the IRR because IRR is not just a factor of the cost of the tower. It's a construct of the MSA, the tenure, the tenancy opportunities in the markets, and the other upgrade opportunities that are there on a particular tower. With these in mind, I think we will construct the return profile of the towers there.
Okay. Just to follow up, just again on Africa itself, your anchor tenant typically has been, over the last few years, adding, say, 2,000 to 3,000 new towers in Africa. I mean, if I were to assume a similar number is now added by you and a CapEx of, say, $100,000 per site, the CapEx, suppose it's, say, $200 million, $300 million. I'm not asking you to confirm or deny that number, but how would you fund that? Would that be completely on the balance sheet of the Africa entity? Will there be some equity contribution from the India entity? Just from the free cash flow perspective of the India entity, would that be sort of ring-fenced to be paid out to the India shareholders?
We will, as we said, while we are working through the business plan and the capital requirement and so on, while from a full-scale perspective, that would be the level of CapEx, maybe in some time, in our capital structure, we will certainly desire to have both a good mix of debt and equity. There will be a good amount of leverage that we are expecting.
In India, free cash flows are largely available for distribution as per your current policy, you know, as when you resume payouts, or could some of those be used to fund the Africa CapEx?
I think, you know, if you look at our balance sheet, the two topics of distribution in Africa are quite unrelated. Africa is a little bit of a long-term strategy. Distribution of the cash flow that we generate here is probably unrelated to the Africa expansion. We will continue to, I think we have a very strong balance sheet and opportunity to see how we can use our leverage to expand in Africa, and that is the intent.
Great. Yeah, that's what that is. Thanks for the clarification about that. Thank you.
Thank you. The next question is from the line of Balaji V from ISL Capital. Please go ahead.
Thanks for taking my question. I had this one question. If I look at it, Jio did most of its rollouts about 10 years back, maybe eight to 10 years back. Is it fair to say that there will be a bunched-up phase of renewals for you from Jio? If that is the case, do you see any risk that they probably try to go to your competitor or try to insert some of it, or at least try to get the rentals down? Anything along the input along those lines would be helpful. Thank you.
Shi Balaji, I think, for, I mean, as I said earlier as well, at this point of time, I would not predict what Jio would do. From our point of view, what we want to do is to make sure that we are providing the top-quality service and have the stickiness for all our customers on our sites as we have done through 5G deployments and things like that. As long as we are providing good service and have negotiations with them on renewal in line with what we have done for the other customers, that's what we are currently looking at. If there is any strategic decision from Jio, I think that's something that we're going to continuously look out for. We are always looking at opportunities to expand our tenancy to mitigate any such risk from other customers.
All right. Also, a quick follow-up. Would it be fair to say that most of the towers that Jio would have leased from you would be in areas where it is hard to set up new towers or even maybe some of the more recent entrants like a Summit or ATC would not have the towers in those points, in those particular locations? As a result, would that also count as a competitive advantage for you?
I would not generalize anything like that. I don't think I can say that. I would not speculate on that one.
Okay. Got it. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Shubham Agarwal from Fidelity. Please go ahead.
Hi, sir. Thanks for the opportunity. Sitting back on Africa again, I just wanted to get a sense that what's the kind of investment kitty that you're setting aside for the Africa foray, let's say, including both CapEx and the initial scale-up losses that could be there in the Africa business?
Again, Shubham, as I said, I think it's a little bit too early to talk about that. I think we are currently in the process of understanding the market, understanding the tower designs, the cost, the scale. I think it's a little bit too early to say what would be the exact amount of investment there.
The second thing is just, again, on Africa, is it right to understand that you're yet to evaluate the opportunity size as well in Africa in any of these markets? It's just an initial, you put out the intent, and you're still kind of evaluating how much financial sense does it make, how much it does not make, what's the kind of intensity or the speed of foray that you want to do in these markets? All of that will take, as you said, three to six months to decide, and you go into those markets. The last thing, all the CapEx that comes in would be funded through debt, just to an overview, yeah.
Shubham, I'll answer the first part. As I said earlier, it's not that we have not understood the opportunity. I think we have done our homework in terms of what we expect the market size to be. Over the next three to six months, as we visit the markets, we will actually firm up these designs so that we will be in a position to actually talk more concretely about it. I think we've done, besides just the announcement and intent, our homework in terms of what we expect the opportunity size to be. Of course, this needs to be firmed up over the next few months as we line up the concrete strategy and as we start deploying. From a CapEx point of view, I believe Vikas already answered that question earlier. Maybe, Vikas, you can prepare it for a sec.
Yeah, I think CapEx, once we do the sizing and all, like I said earlier, I think we'll be sort of deciding how we are going to fund this. Clearly, as we mentioned earlier, there is a lot of leverage headroom. We will be using a lot of leverage to fund the Africa expansion.
Thank you. That's all for me.
Thank you. The next question is from the line of Atul Mehra from Motilal Oswal. Please go ahead.
Good afternoon, and thanks for the opportunity. I have a question again on Africa. What is the return on capital expected based on the homework you have done as yet? Obviously, this is just taking into account the organic expansion. Inorganic could obviously depend on price and many other things. Just on the organic, what would be the return on capital as per your initial assessment? How do you balance this versus returning capital back to shareholders in India? Is there a particular hurdle rate below which you would say that it doesn't make sense to be in Africa and just return the capital back to Indian shareholders? That's it. Thank you very much.
I thought I actually answered this question earlier. The return on capital in Africa will be determined also by what's there in Africa in terms of comparative landscape, what's the cost of tower that we eventually look at. I'm only talking about the organic part here. I think, of course, there will be a hurdle rate that we will need to maintain for us to have a feasible business there, understanding the risks on the ground. While I cannot give you a number right now, I think it will not determine just the factor on what we do in India. It will be more an Africa decision in terms of what's the right hurdle rate to work at, what's the market opportunity size, what kind of tenancy portfolio, what kind of MSA structure we have. All those will contribute to make a decision on the return on capital.
At this point of time, I will not give any number on that one.
Got it. All right. Thank you, Arun. Thank you.
Thank you. The next question is from the line of Sumangal Nivetiya from Kotak Securities. Please go ahead.
Yeah, good afternoon, sir. Most of the questions are answered. Just from the initial comment you made, the initial phase in Africa would be more of a learning phase before which we decide to go inorganic or scale up. Is it fair to assume two to three years is the initial phase and beyond post that, only a big inorganic or something major we could look at in that geography?
Sumangal, I think I would not be able to answer that question right now. I think, as I said, if an opportunity comes earlier and it's the right thing to do, we will for sure consider it. I think, as I said, let's get started with the organic of building new towers with an anchor customer, understand the market. If an opportunity comes with the right valuation and where we can also add value, we'll consider it. I would not put any hard deadlines as of now that we'll not do anything before two to three years. It may take one year. It may take five years. I think it depends on what the opportunity is and what the valuation is.
Understood. Sir, you commented on the strong order book for the next three to four quarters for the India business. Is it possible to share directionally in terms of tower addition? How should we look at it versus what we've done in the last few quarters?
I can't give you the future numbers, Sumangal, but what I can tell you, as you have seen in Q2, we have delivered strong tower additions. I think despite there was a slowdown of tenancy from one major customer, which we expect to pick up in the coming quarters. I can't give you a number, but as I said, we'll continue to look at what we have delivered in the past few quarters and keep maintaining or improving the momentum from there.
Got it. Got it. Thanks and all the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Prachur Sah for closing comments.
To conclude, this has been another strong quarter for Indus Towers, underpinned by robust tower additions and strengthening of our market presence. A key highlight of this quarter was our announcement to foray into Africa, a significant step in expanding our geographic footprint, leveraging our proven execution model in a new high-growth market. We are making meaningful progress on our automation and AI initiatives, embedding technology deeper into our operations to strengthen efficiency, accuracy, and scalability. Looking ahead, our focus remains on shaping the next phase of telecom infrastructure, one that is smarter, greener, and more resilient. With rising 5G adoption and sustained data growth, the role of reliable passive infrastructure is more critical than ever. Backed by our scale, execution excellence, and potential investments, we are confident of delivering sustainable growth and long-term value creation. Thank you all for joining this call. Have a good day.
Thank you. Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to audio conference service from CORUS Call, and have a pleasant evening. Thank you very much.