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Credit Rating Agency ICRA has revised the outlook on the telecom tower industry to Negative from Stable, as the industry has been facing headwinds in the form of elongated receivables, on account of delays in payments by some of the telecom service providers. As per ICRA, the gross receivable days are likely to remain above the ICRA’s outlook revision threshold of 80 days. The stretch in the working capital cycle resulted in moderation in the liquidity profile of the telecom tower industry and increased the reliance on external debt, which, coupled with the provisions for doubtful receivables, is likely to weigh down on the return metrics of the industry.

According to the report, while the network expansion and technology upgrades point towards steady growth in the infrastructure-provider business, the tower industry will not be immune to liquidity pressures faced by a few telcos. Meanwhile, several payments between the weaker telcos and tower companies remained unfulfilled and thus pressures continued to mount on the working capital cycle of the latter. ICRA expects revenue growth of the tower companies to remain low at 3-4% with operating margins (adjusting for energy revenues) at around 60% going forward (lower than 75-77% in the past). These, along with elevated working capital requirements, resulted in moderation in the cash balances of the industry to around Rs 2500-3000 crore, from Rs 6500-7000 crore levels in the past.

The report further said the demand for telecom services, especially data, witnessed strong growth in the past, translating into consistent network expansion and upgradation by the telcos. This kept the demand for tower companies buoyant, resulting in steady addition in tenancies. The tenancy ratio has largely stabilized and is likely to remain at around 1.2-1.3 times in the medium term. Nevertheless, the tower industry’s dependence on weaker telcos in terms of tenancies remains high at around 34%. Thus, till the time there are liquidity pressures on such customers, the tower industry’s health is likely to remain affected.