Icra cuts telecom tower industry outlook to negative from stable

Fearing payment delays from key telcos to continue in FY24, domestic rating agency Icra on Tuesday cut its outlook on the telecom towers industry to 'negative' from 'stable'.

In a note, the agency said delays in payments by some of the key customers have elongated the receivables cycle for the telecom tower companies to more than 80 days in FY23.

The tower industry's dependence on weaker telcos in terms of tenancies remains high at around 34 per cent. Thus, till the time there are liquidity pressures on such customers, the tower industry's health is likely to remain affected, it said.

"The elongation in receivables is likely to result in tower companies making sizeable provisions to the tune of Rs 10,000 crore in FY23, thereby denting their profitability," its sector head for corporate ratings Ankit Jain said.

The agency expects the provisions to continue going forward, although the quantum is likely to moderate from the FY23 levels, Jain said, adding that increased reliance on external debt is expected to keep the net debt levels elevated.

It expects the revenue growth of the tower companies to remain low at 3-4 per cent, with operating margins (adjusting for energy revenues) at around 60 per cent going forward, which is lower than 75-77 per cent in the past.

The network expansion and technology upgrades point towards steady growth in the infrastructure-provider business, but the tower industry will not be immune to liquidity pressures faced by a few telcos, it said.

"While the technology upgrade to 5G brings with itself a favourable demand outlook for the tower companies, their capex intensity is likely to increase and Icra expects the annual capex to be in the range of Rs 6,000-7,000 crore for the industry," Jain said.