Outlook for Indian telecom tower industry revised to stable: ICRA

The industry was earlier facing headwinds owing to elongated receivables, on account of delays in payments by some of the telecom service providers.

However, the situation has improved materially with consistent timely payments to the tower companies resulting in reduction of receivable days to around 45-60 days, lower than the ICRA's negative outlook threshold of 80 days.

This, coupled with recovery of the past overdues, has enhanced the liquidity profile of the telecom tower industry and moderated the reliance on external debt, which is likely to translate into improvement in the return metrics of the industry.

ICRA expects the tower industry to report an operating income growth of 4-6 per cent with operating margins (adjusting for energy revenues) at around 70-75 per cent for FY2026.

These along with easing of the working capital requirements is likely to boost the liquidity position with the cash balances of the industry increasing to around Rs. 5,500-6,000 crore from Rs. 2,200-3,000 crore levels in the past.

"Improvement in the credit profile of some key telecom service providers, who are the customers for tower companies, has eased the working capital cycle of tower companies," said Ankit Jain, Vice President and Sector Head, Corporate Ratings, ICRA.

Moreover, there has been clearance of sizeable amount of past overdues, which has resulted in reversal of provisions made earlier in FY2023.

This has augmented the cash flows and liquidity position of the industry as a whole. The collections are expected to remain timely, going forward, thereby restricting the industry debtor levels below 60 days.

"This will also result in reduction in external debt, with ICRA projecting net external debt/OPBDITA at around 3.4x for FY2026," said Jain.

With improvement in the credit quality of some of the customers and fund raise exercise concluded by a few of them, these customers are expected to re-initiate their capex plans.

The demand for telecom services, especially data, is witnessing very strong growth in India, translating into consistent network expansion and upgradation by the telcos, said the report.