Telecom tower cos to see 10% revenue growth over 2 years: Moody's

Indian tower companies have stronger operating metrics and balance sheets but lower profitability, said the report

Telecom tower companies in India will post a revenue growth of about 10% over the next two years as mobile operators are expanding their 3G and 4G footprint and will seek to lease more tower space, Moody's Investors Service said on Monday.

"We expect continued growth... As mobile operators, building out and strengthening their third and fourth generation (3G and 4G) footprints, will seek to lease tower space and sell more of their own towers," Moody's Assistant VP and Analyst, Nidhi Dhruv said in a statement.

We expect overall year-on-year revenue growth of about 8-10% for tower operators in India during the next one to two years, Dhruv added.

In its report on Indian and Indonesian telecom tower companies, Moody's said mergers and acquisitions as well as consolidation are likely to happen in both markets during the next two to three years.

"Mobile operators are looking to sell their towers and use the proceeds to fund capex and reduce debt, because, for them there is a limited strategic benefit in owning towers versus leasing them," she said.

"Purchasing these towers will help independent operators achieve scale and a competitive edge through expansion of their geographic footprints," she added.

Moody's said Indian tower companies have significantly larger scale, when compared with their Indonesian counterparts.

Indian tower companies have stronger operating metrics and balance sheets but lower profitability.

"Indian companies also have higher tenancy ratios, but their reported EBITDA margins are lower owing to higher fuel costs and the associated accounting, as well as lower tower rental rates," Moody's Associate Analyst Maisam Hasnain said.

India has a more supportive regulatory framework – when compared with Indonesia – for investing in tower companies. Indonesia does not allow foreigners to own towers directly, but they can own shares in publicly listed companies that own shares in tower companies, Moody's said.

"India allows up to 100% foreign ownership of tower companies, but regulators have proposed reducing that level to 74%. The approval process for the deployment of new towers is complex and time-consuming in both countries," the agency added.