Indus Towers Limited (NSE: INDUSTOWER) Q1 2026 Earnings Call dated Jul. 31, 2025
Corporate Participants:
Unidentified Speaker
Prachur Sah — Managing Director and Chief Executive Officer
Vikas Poddar — Chief Financial Officer
Analysts:
Unidentified Participant
Sachin Salgaonkar — Analyst
Sanjesh Jain — Analyst
Aditya Suresh — Analyst
Vivekanand Subbaraman — Analyst
Arun Prasad — Analyst
Aliasgar Shakir — Analyst
Presentation:
operator
Good afternoon ladies and gentlemen. I am Avirath, the moderator for this conference. Welcome to The Indus Towers Limited first quarter ended June 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 an 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 MD and CEO of Indus Towers, Mr. Prasoor Saab thank you and over to you Mr. Saab.
Prachur Sah — Managing Director and Chief Executive Officer
Thank you Avirath and a very warm welcome to all participants. Joining me today are my colleagues Mr. Vikas Podas, CFO, Mr. Tejinder Kalra, COO and Mr. Dheeraj Agrawal, head Investor Relations. On the call I am pleased to present our business performance for the quarter ending on June 30, 2025. We are pleased to have started the financial year on a strong note continuing the momentum built in FY25. Our operational excellence and customer centric approach have enabled us to maintain a majority market share in our customers rollouts resulting in healthy tower and colocation additions from all our customers.
Before speaking about key business developments, I want to take a moment to recognize the exceptional efforts of our field teams. Despite operating in challenging environments including harsh weather conditions, they continue to work towards realizing Indus vision of Pan India connectivity. During the quarter our teams deployed nine sites along the remote Hale route in Lagak which sits at an altitude of 4,500 meters enabling connectivity for over 25,000 people including villagers, army personnel and tourists. Our field force also managed to sustain robust network performance in areas of Assam, Tripura and Manipur which were impacted by the onset of an intense and earlier than expected monsoon.
In terms of the regulatory landscape, the government continues to drive reforms supporting faster rollout of telecom infrastructure in a sustainable manner. The Row Rules 2024 have now been adopted by nearly 31 states and Union territories. The Green Energy Open Access Policy has now been notified in 28 states marking steady progress towards encouraging the ongoing transition to cleaner sources of energy. We are working with all stakeholders at central and state levels for deployment of smart meters at sites which would help boost efficiency, reduce costs and enable more granular customer billing at scale on the 5G front, the total 5G base stations increased marginally to around 487,000.
Although deployment momentum has slowed, the the 5G related contributions remain a meaningful driver for our loading revenue. As 5G adoption deepens, we expect a natural rise in demand for additional sites to ease network congestion. With our proven capabilities in passive infrastructure, we are well placed to capitalize on these evolving needs. As per the latest Ericsson Mobility report, global 5G subscriptions reached over 2.4 billion by the first quarter of 2025, growing by 145 million during the quarter, while 4G subscriptions declined by 55 million. Global 5G subscriptions are expected to reach over 6.3 billion by 2030, accounting for around two thirds of the total subscriptions.
As per the report. In India, 5G subscriptions are expected to reach around 980 million by the end of 2030, accounting for 75% of the total. As per the latest TRI report, a total 5G subscription base in India grew to 245 million by the end of March 2024, growing by 112 million in FY25. India’s data consumption trajectory remains robust, driven by ongoing shift from 2G to 4G and the rapid uptake of 5G services. For the quarter ending March 2025, the top three telecom operators reported a 14% year on year increase in average monthly data usage per user reaching 28.5 GB, while total data consumption rose by 18%.
According to TRI, 5G usage alone grew 18% quarter on quarter, accounting for 30% of total data traffic in Q4 FY25, up from 26.5% in Q3. As data demand continues to surge and 5G becomes more mainstream, the need for robust passive infrastructure is set to grow steadily. With our deep domain expertise, we are well equipped to support this expansion and unlock value from the evolving digital landscape. Now, talking about our operational performance, the rollout Momentum continued in Q1. We recorded strong colocation additions in Q1 with contributions from all our customers. We added 2468 micro towers and 5,7 corresponding colocations during the quarter, translating into year on year growth of 11.4% and 9.7% respectively.
As a result, total macro towers and colocations base stood at around 251,804, 11,200 respectively. Given the incremental tenancy ratio of 2.3, our portfolio tenancy ratio remains stable at 1.63 after many quarters. The overall colocation base of leaner towers stood at approx. 14,000 with the addition of 57 colocations during the quarter, including leaner towers. Our net colocation additions to that 5834 in Q1. 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 retained a strong positioning with key customers backed by our speed, quality and ability to deliver at scale.
Our focus on safety and quality also serves as a key factor that differentiates us from our competitors. In addition to securing majority of our customers new rollouts, our colocation additions this quarter included select transitions by our customers that reinforced our position as the preferred infrastructure partner for telcos. Like the previous few quarters, our ibs deployments in Q1 were the highest ever in our history which included building sites for government, institutional and enterprise bodies, thereby expanding our search. Underpinning this achievement was our shift to a proactive acquisition model encompassing early engagement with the concerned parties that helped us deliver state of the art build to suit solutions.
Moving to cost efficiency wherein we continue to observe discipline in both operational and capital cost through targeted initiatives. During the quarter we sustained momentum across a broad set of operational efficiency initiatives aimed at driving structural cost savings and enhancing execution. Key initiatives included improvement in field workforce productivity through digital enablement and optimization in site allocation to reduce redundancies. Workforce deployment is being further optimized through centralization and rationalization of roles and responsibilities. Energy cost is a key focus area and reducing dependence on diesel is critical to meet our energy optimization plans. The quarter gone by saw some unforeseen events due to the early onset of monsoon season.
This contributed to an unusually high number of weather related disturbances in form of heavy rainfall and thunderstorms among others, leading to a 10% year on year increase in our diesel consumption. In Q1 FY26 we anticipated the timing related adjustment in diesel consumption to reflect in the current quarter. We continue to work on electrification of non electrified sites, deployment of energy storage solutions and our transition towards renewable sources of energy, especially solar. Our solar site count as on 30th June 2025 stood at over 32,000 with approx. 2250 sites added during the quarter. Regarding CAPEX, we have further strengthened our efforts to manage incidental costs associated with tower deployments.
Through standardizing cost frameworks, tightening contracting norms and improving planning at the execution level, we are working to bring greater predictability and control on our CapEx. Collectively, these measures are yielding tangible improvements in our cost structures and positioning us well for sustained margin resilience. Thirdly, on network uptime which remains of critical importance to our customers. As referenced earlier, we saw an unusually high number of disruptive incidents in the quarter gone by, including heavy rainfall and thunderstorms in areas of Uttar Pradesh, Punjab and Northeast amongst others. Despite this, we were able to deliver a high level of uptime of 99.96% in Q1FY26 largely due to the resilience and commitment of our teams on the ground.
ESG now moving to esg, a key priority of our organization regarding the environmental aspect. Following a near term and net zero targets being approved by sbti, we formulated a decarbonization roadmap during the quarter for achieving our near term targets. We continue to work towards reducing our dependence on diesel by increasing the share of renewable sources to fuel our energy needs. Our solar site count stood at close to 32,000 at the end of June, having added 20 to 50 sites during the quarter. Additionally, we considered ways to address environmental concerns in our community service and collaborated with a firm that specializes in the responsible disposal of sanitary pads in a way that leads to lower emissions compared to other methods such as incineration and landfills within the social dimension or in our workplace.
Safety safety of our employees and partners is of paramount importance to us and to that end we launched our safety campaign Sankar during the quarter. This program is tailored to improve the safety of our technicians working at heights or not hours, providing them training and educating them on best practices. We continue to make efforts to improve the representation of women in our workforce with our gender diversity standing at 15.7% at the end of Q1 compared to 11.2% in the same period last year. During the quarter we also conducted a double materiality assessment and a climate risk assessment as part of our broader ESG roadmap.
These efforts re inform our commitment to building a resilient, responsible and future ready organization. On the CSR front, we delivered relief kits in the areas of Assam, Tripura and Manipur which was significantly impacted by the onset of an early and intense monsoon which I alluded to earlier. As part of our flagship program Saksham and our Digital Transformation WAN initiative, it is now operational in 11 states with Orissa being the latest addition. As part of our other flagship program Pragati, we signed a landmark MoU with IIT Bombay to jointly advance solar power generation and energy storage technologies.
Through these flagship programs, we managed to touch over 6 million lives in Q1. We were pleased to see our CSR efforts being recognized by multiple bodies even as we won the Healthcare Excellence Award for our Cancer Care program at the 6th Astrocham, CSR and Sustainability Awards. Additionally, we were awarded by IIT Bombay as the Strategic Partner of the Year at their annual CSR Conclave for our significant contributions to clean energy research and development. In addition to our strategic priorities, we see digital and artificial intelligence emerging as one of the most transformative forces of our time and its potential to reshape industries including telecom infrastructure at industry hours.
We recognize the shift and actively embracing AI, automation and digital tools across our operations to drive greater efficiency, agility and insight led Decision making Coming back to a critical matter with regards to distribution of cash, the Board, on recommendation of the Committee has decided to conserve cash in the short term. This decision has been made after due consideration of a variety of contextual factors which include the evolving industry landscape, stability of our customer along with the elevated capex for the company and inorganic growth opportunities. The Board believes that this is the best interest of the company, strengthening its financial resilience and enabling it to respond effectively to any emerging opportunities and or risks ensuring the security of its long term business interest.
The Board will continue to monitor the evolving situation closely and reassess its decision by the end of financial year. The Board remains fully committed to creating value for the shareholders including by way of earliest possible reinstatement of distributions basis the above factors I would now request Vikas to take you through our financial performance for the quarter ending June 30, 2025 and I look forward to your questions. Over to you Vikas. Thank you,
Vikas Poddar — Chief Financial Officer
Thank you Prachoor and good afternoon everyone. I’m pleased to present our financial results for the quarter ending 30 June 2025. We had an encouraging start to the year with the momentum seen co location additions of the previous few quarters continuing in this quarter as well as this in turn has translated into a steady financial performance with healthy cash flow generation. Turning to the financial performance of the quarter, gross revenues grew by 9.1% year on year to Rs 80.6 billion. Core revenue from rental were up by 10.1% year on year to rupees 51.1 billion, underpinned by another quarter of significant additions to our existing tower and colocation base.
On a sequential basis, our reported gross revenues and core revenues were up by 4.3% and 1.4% respectively. Please note that the core revenue for quarter four of the last financial year included one time reconciliation benefits. As I had mentioned in the previous quarter’s Earnings call and Q1 of this year includes the first full quarter revenue for the towers we acquired from Airtel in the last quarter. These two factors broadly offset each other and the resultant sequential growth that we see is on account of our organic business performance. Moving on to profitability, reported EBITDA declined 3.4% year on year and was broadly flat quarter on quarter at rupees 43.9 billion.
The EBITDA margin was lower by 7.1 percentage point year on year and 2.4 percentage point quarter on quarter at 54.5% in quarter one. I would like to remind you that quarter one and quarter four of FY25 included writebacks of approximately 7.6 billion and rupees 2.3 billion respectively relating to the collection of overdue receivables from a major customer. Similarly, the customer cleared additional dues amounting to rupees 0.9 billion in Q1FY26. Another point to note is that quarter four FY25 included the recognition of operating expenses and depreciation related to the tower acquisition from Airtel based on common control accounting treatment.
Adjusted for the write backs and common control accounting impact of the acquisition, Our EBITDA grew 13.6% year on year and 0.6% quarter on quarter. Our energy margins were at negative 4% in quarter one compared to minus 5.2% in quarter four and negative 5.5% in Q1 of the last financial year. Please note that quarter four included accounting impact of the common control transaction which I alluded to earlier and normalized energy margins to that minus 2% in quarter four. However, as touched upon by Prachu earlier, Please note that Q1FY26 saw an unexpectedly higher number of weather disruptions due to early onset of monsoon season which led to an increased use of diesel at our sites in order to maintain network uptime thereby affecting our margins adversely.
Please note that we continue to work on the deployment of energy storage solutions and transitioning towards renewable sources of energy to reduce our diesel consumption. Our profit after tax fell by 9.8% year on year and 2.4% quarter on quarter to rupees 17.4 billion adjusted for the aforementioned one offs. Our profit after tax grew by 23% year on year and declined by 6.9% quarter on quarter. We delivered strong returns with a reported pre tax return on capital employed of 28.1% and post tax return on equity of 30.8% over the past 12 months. Our free cash flow generation remains strong at rupees 15.7 billion in Q1 driven by sustained business momentum and the collection of overdue receivables which also resulted in a reduction of rupees four billion in trade receivables during the quarter.
To conclude, it has been a good start to the year, underpinned by healthy colocation additions and notable financial performance. We continue to sharpen our focus on cost efficiency and technology led transformation, including automation and AI. With structural growth drivers firmly in place, we remain confident in our ability to deliver sustainable value in an evolving market. With that, I will now hand it back to the moderator to open the floor for questions. Thank you.
Questions and Answers:
operator
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 via chorus. Due to time constraints, we would request if you could limit the number of questions to two to enable more participation. Hence, management will only take two questions per participant to ensure maximum participation. Participants who wish to ask questions May please press Charan 1 on the touchtone enabled telephone keypad. On pressing Charan 1 participants will get a chance to present the question on first in line basis. To ask a question, participants may please press charan1 now the first question is from the line of Sachin Salgaokar from Bank of America.
Please go ahead.
Sachin Salgaonkar
Thank you for the opportunity. Two questions. Number one, just wanted to double click on management’s point of not returning cash back to shareholders in the near term on two aspects. One, you know what has changed in terms of management thinking in terms of stability of that one particular customer because we know for a fact that you know, the customer has been clearing dues on time paying backlog. So if anything incremental has changed in last three to six months, you know, would love to actually understand that. And you know, second subpart of the question is management did mention on certain inorganic growth opportunities any broad aspects we could get clarity in terms of how management is thinking.
So that’s question number one. Question number two is when we look at the TAR additions this quarter, maybe there’s a bit of a seasonal impact where the TAR additions are a bit slow. But on an annual basis is it fair to say that, you know, the growth for this year in terms of number of TAR adds would be slower as compared to last year because that one particular customer is not adding that much stars and going ahead the growth could slow down to a new normal. So any clarity in that direction would be helpful.
Prachur Sah
So thanks. Thanks Ajit. So the first question was. So I think when the committee made a decision it was not just based on decision on one factor. There were many factors that were Considered which included the stability of the customer. Right. And the opportunity that you mentioned. So. So I think there was no specific change as per se but I think it is conscious call that the board has taken in terms of conservation of cash and they will revisit the decision at the end of the financial year. From a tower additions point of view there are two aspects.
One is the seasonality as you mentioned in Q1 it did impact the tower additions but at the year level we expect the growth to remain robust. Right. I think we have a visibility on our order book today and based on the order book availability today across all the customers we believe the tower additions will continue to be very strong for Indus even in this particular financial year. In terms of the other opportunities, I think as we look at the overall industry scope we started some bit of consolidation when we took Eetel Towers in the last quarter and hence any other opportunities that are there to to consolidate the towers we will be considering during the course of the year.
So I think these are the broad three answers to the question that you raised.
Sachin Salgaonkar
Got it. Just one small follow up out there. Clearly if nothing has changed per se from the stability of a customer and there are multiple factors which are being looked by management, I think the broader question which comes is is there some kind of a reinstatement of dividend policy which could be expected if not in the near term, in medium term because quite frankly the stability of the customer will be an issue now, will be an issue a year down the line and perhaps after that as well. So as a shareholder should we not expect any dividend going ahead or is there a certain policy which one could expect from management going ahead? And of course one understands the near term issue but this is more like a particular framework in terms of how to think about cash returns to shareholders in a medium term perspective.
Prachur Sah
No. But I think Sachin, I don’t think there is. This is more a policy discussion. It is just a call that the board has made. I think the board remains committed to rewarding the shareholders as per the policy. The dividend policy requires the board to consider certain predefined parameters including future cash requirement of the company before distributing its free cash. So as I mentioned in my commentary, I think board will be looking at the decision at the end of the financial year and it definitely will keep is keeping the the interest of the shareholder in mind.
So I think there’s no large level policies change that is being discussed here. I think it will evolve the, you know, it will continue to monitor the situation closely and make the assessment at the end of financial year.
Sachin Salgaonkar
Thank you. I’ll join the queue.
operator
Thank you. The next question is from the line of Sanjay Jain from ICICI Securities. Please go ahead.
Sanjesh Jain
Yeah, thanks. Just touching upon again. You mentioned that it’s largely for industry consolidation. Is the scope of inorganic infrastructure business which is tower code issue or does the scope expand beyond this and email the lensing Any other businesses, allied or non allied. Number two on the tower edition.
Prachur Sah
I’m sorry, I’m not able to hear you very clearly. I think your line has a little bit of a breakup happening so we couldn’t hear the question properly.
Sanjesh Jain
Okay, okay. Can you hear me now? Okay, sorry. So first of the inorganic growth petchur, you mentioned that you would look at further industry consolidation if any opportunity comes around there. But is inorganic limited to the tower industry or we are open for doing inorganic in a non allied business. Any other businesses other than the tower industries, that’s number one. Number two on the tower growth for FY26 and the CapEx for this number, the CAPEX appears to be higher. Is that indication that we couldn’t deploy while we had an order book and that’s where the inventory line with us.
And Q2 Q3 we may see an acceleration as the weather condition normalize. Will that be a normal reading for us which would be a right reading. And third on the energy margin though we had challenges but on year, on year basis our energy margin losses have come down by 160 basis point. Will it be fair to assume that at least 160, 200 basis point reduction in the losses is quite feasible for this year? Thank you.
Prachur Sah
Okay, I’ll try to remember all the, all the questions. So in the first question from an inorganic point of view, I think when I said inorganic opportunities I think it’s both organic and inorganic, especially in the tower space. Right. So the idea is to see how we can capture the maximum market share when it comes to towers in India. So as of now the focus remains the tower business growth. Right. So I think there’s, that’s that clarity we, we have. The, the second question that you had. Was
Sanjesh Jain
so on the CapEx and tower growth
Prachur Sah
elevated CapEx. Right. So the capex to be honest, I think we don’t. To be honest, it’s not just capex is a factor of multiple things. I think it’s a factor of what we are spending on growth, what we are spending in replacement, what we are looking at an aging infrastructure in terms of deployment, in terms of making sure the towers are strengthened and have a robust setup. So I think it is a combination of that. So I think that’s the reason of the CapEx that you see. And as coming quarters continue, the CAPEX will continue to be distributed in these three parts.
The last question was energy margin. I think yes, compared to last year, the energy margin has improved by 160 basis points and it has been through concerted actions in terms of how we can improve our cost programs and deployment of solar and lithium ion batteries across our sites. So while I cannot comment on an exact number, but of course the intention is to improve this energy margin as we move forward.
Sanjesh Jain
Got it. Just one follow up on the capex. Part one is growth, second is the maintenance. Third is the replacement of the capex which are voting out. Can you, can you, can you break the capex in the three bucket for. Us in this quarter?
Vikas Poddar
So Sanjesh, if I may take that, I think we already in the investor pack gave a split of maintenance and other than maintenance. Now basically what we have in the other than maintenance is while you know, the understanding that you have is it’s all towers, but we are also doing lot of sites which are solar, so solar and also replacing our batteries and upgrading batteries to lithium ion, adding dgs and all that. So there are various upgrades that happen to the towers which don’t add to the tower count but nevertheless incur a CapEx. And you’re also right in understanding that the first quarter was obviously seasonally impacted in terms of rollout and all.
So we do carry work in progress which will show up as rollout in the subsequent quarters.
Sanjesh Jain
That’s clear. Vikas, thank you. Thank you. Thanks for answering all those questions and best of luck for the coming quarters.
Vikas Poddar
Thank you.
operator
Thank you. The next question is from the line of Aditya Suresh from mcquire. Please go ahead.
Aditya Suresh
Thank you for the opportunity. Good afternoon. Just on the macro tower edition, comments, given that you mentioned that you have a backlog which is fairly robust, are you able to provide any range of how your footprint could look like in the next, say maybe one year or perhaps in two years. And I guess the related question to that is would these kind of tower additions be all largely single tenancy?
Prachur Sah
No, I think while I cannot provide you the numbers, I think because it all depends on the customer plans, we have a strong order book. So I think as I said, the tower rollout will remain robust for the next few at least we have visibility the next four to six quarters, so it will remain robust. What was the second question?
Aditya Suresh
Single tenancy
Prachur Sah
single? No, I think it’s going to be a combination. I think it’s, I think as you saw in this particular quarter we had a rollout of close to 2800 towers and 6000 tenancies. So we expect both tower and tenancies to growth. I don’t know the ratio in which they will grow but these towers will continue to have an option to have a second tenant and we believe tenancy will come through okay.
Aditya Suresh
And in terms of the sharing revenue per operator per tower, can you speak about the trends there? There’s been a gradual moderation in that ratio over the past couple of years. Seems to be still moderating. Any thoughts color here on this as you can add towers, Will this improve?
Vikas Poddar
Aditya, let me take this. So I think you know, even in the previous quarter I sort of clarified this, you know, while we look at the ARPT trends but somewhere I think it is very important to understand that the ARPT trends are not really reflective of the health of the business or the, you know, there’s no very strong correlation or close correlation in terms of margin growth and all. Let me give you an example. When let’s say we have more sharing as we had in quarter one, we had almost two plus sort of tenancy, incremental tenancy on the new towers.
So whenever we have new sharing that really brings down the arpd but that really adds to the margin because we get a lot of operating leverage and a lot of that sharing revenue actually flows down to the margins. Right. So somewhere talking about quarter one trend, I think sequentially the decline that you see is driven by of course more sharing because we had a significant sharing growth, colocation growth. And second is as I mentioned in my commentary earlier, we had some non recurring one off reconciliation revenue benefits in the previous quarter which are obviously missing in quarter one.
So to that extent we had some benefit. And finally I think what also happens in our business is we pay rates and taxes to various municipal corporations and we charge back those rates and taxes to our customer. And typically rates and taxes are built by most of the municipal corporations in quarter 3, quarter 4, typically in the second half of the year. So first half of the year sees a dip in the rates and taxes and to that extent the chargeback of those taxes as well. So there are basically these factors but obviously I mean it does not impact the margin is what I would like to emphasize.
Aditya Suresh
Thanks Sukhas. If I can just check in terms of rent erosion as contracts coming up for renewal, are you seeing much deflationary pressures There.
Vikas Poddar
Well, as of now it is pretty much the same. I think the framework that we had agreed two or three years back. I think we are still sort of working on that same framework. So there’s no incremental impact of any renewal. I mean, you know, I would like to reiterate that renewal is always a win win because we get visibility of 10 years, cash revenue, etc. With a small decrease. So I think there’s no major change. I mean, as far as that is concerned. In any case, I mean most of the portfolio has already been renewed by now.
There’s very little left for subsequent renewals in the next couple of years.
Aditya Suresh
Thanks. Thank you.
operator
Thank you. Participants who wish to ask questions may press star and one at this time. The next question is from the line of Vivekanand Subaraman from AMBIT Private Cap Limited. Please go ahead. Mr. Vivekananda, your line has been unmuted. Please go ahead with your question.
Vivekanand Subbaraman
Yeah, am I audible now?
operator
Yeah,
Vivekanand Subbaraman
yeah. So I have two questions. So one is the maintenance capex that you had in calendar year 2024, that was 11.9 billion rupees. But in the first half of this calendar year you have almost spent that much on maintenance CAPEX. 11 billion to be exact. So could you explain to us the fact that why maintenance capex has gone up so much? You have added some network sites by acquiring them from Airtel, but that does not seem to explain this jump in maintenance capex. The second question I have is your attitude towards debt now while delaying cash return.
You highlighted that one of the reasons why you chose to delay cash return and reevaluate it is perhaps opportunities in the tower space, both organic and inorganic. My question is, is debt now completely ruled out as far as capital structuring is concerned? How should we think about the long term balance sheet structure? Because previously you had given indication and even shareholder voting for the Airtel towers. You had clearly specified that you wanted to fund that transaction using towers using debt. It seems that now you are not pursuing that. So an explanation on this front would really help.
Thank you very much.
Vikas Poddar
Yeah, hi Vivekanand. I’ll take that question. So I think first of all on the maintenance capex, your observation is right. I think the important point to note is obviously we have an aging portfolio and you know, there are basically years when we will see a lot of focus on tower strengthening, maintaining, etc. So this is one such year where we are focusing a lot on strengthening our towers and basically, you know, making those towers ready for Any tenancy growth and so on. So that is one, two, I think as we had shared earlier also I think as part of our strategy we are transitioning from the old tech batteries to more lithium ion new tech batteries which have a higher upfront capex involved.
But from a TCO perspective the total cost of ownership is much lower because they have longer lives. So that is again part of our strategy which is reflecting in the higher maintenance capex. Coming to the discussion around debt, I. Think. You know, the reduction in debt that you see is largely reflecting the cash management that we are doing. I mean it is part of the cash preservation and of course as and when the board decides to distribute all that will be used. So this is basically parking the cash as part of our cash preservation strategy and that is showing up. I mean there’s no, of course there’s a lot of leverage headroom and there’s no, there’s absolutely no attitude of sort of being any, having any earnestness to increasing our debt as and when required.
Vivekanand Subbaraman
All right, I have one follow up on the maintenance capex explanation. Thanks for the color. So what you are suggesting is that there is some one one time or perhaps periodic maintenance capex that has now been undertaken which is resulting in a very big spike and perhaps this could also normalize once you are done with the augmentation of your legacy towers and maybe this cycle of replacing lead asset with this lithium ion battery. Is that how one should think about it? Because the question that investors are looking to answer is what is the recurring maintenance capex that one can assume on a rupee million per tower on a recurring basis? How should one think about maintenance capex?
Vikas Poddar
Yes, just to give you a sense, typically we would replace let’s say almost 1 4th or 1 5th of our portfolio in terms of batteries. Right. So you could probably expect three to four years of sort of high maintenance capex and then things will obviously subside because then the, the useful life sort of takes over.
Vivekanand Subbaraman
Okay, great. Thanks for the elaborate answers and all the very best.
operator
Thank you. The next question is from the line of Arun Prasad from Avendus Park. Please go ahead.
Arun Prasad
Good afternoon everyone. Thanks for the opportunity. My question is on the energy margins. If we have to see how the energy margins are, how much contribution of the net loss in the energy margins coming from say diesel fridge and say versus the reconciliation of the units between you and the clients, where is which bucket is contributing more to this energy margin? Second, by doing more and more solar directionally, are we planning to reduce the energy margins because of the diesel that’s happening. And third, how do we charge back this to the customer? For example, if in solar obviously the operating cost is very lower after the capex is done.
So will the benefit pass down to the customer or we will be showing this in the energy margins.
Prachur Sah
From energy margin. I want to clarify, I think you should not look at from a, you know, there is a factor of timing, there is a factor of reconciliation, there is a factor of different commercial model that we have the customer with. So I don’t think we should be looking at a split of what the energy margin is coming from. I think we have a holistic plan that we are working towards to make sure that we are more energy efficient towards the customer and we improve our margins. As far as solar is concerned, I think solar is for us service revenue because we are deploying a capex and we are getting a service revenue out of it.
Hence the energy generation is part of the energy units that the customer gets if they are on the pass through or if it’s an fem, whatever be the structure be. So from a solar point of view our revenue comes on the as a similar to a loading revenue in rip.
Arun Prasad
Sorry, one clarification. We keep saying that the energy margins are negative because of the timing issues but this never seems to get reversed. It’s always only piling up. How should we. Can you please help us understand this?
Vikas Poddar
So I mean see the energy margin is not not only the timing issue as we have explained in the past. It is basically the difference between what the expected cost is and what the actual cost is. And as you also explained in the past that you know, there is a difference because of, you know, sometimes our energy costs are higher because of weather disturbances. They are also sometimes higher because of the discom not billing us kind of correctly and sent giving us abnormal bills. So there are various reasons because of which we get into these reconciliation issues between what it should be and what it is.
So it is not only timing which basically should get reversed, you know, over next few quarters. It’s not always that case.
Arun Prasad
But what is a structural solution for this reconciliation issues? We have so much tech and at some point of time we need to because we are talking about 1500 rupees per tower per month which is like almost like a very big amount for our portfolio. So how we are planning to address this reconciliation issues?
Prachur Sah
Yeah, so I think again, you know, there is reconciliation, there is operational efficiency as we said, you know, from an operational point of view, as you mentioned yourself that there is a Deployment of solar, we have changed our strategy to move to lithium ion batteries which are more rotated. So one is the operational reduction of cost, hence reducing the gap between should be and what the actual cost is. And secondly, on the reconciliation issues, one effort that is currently ongoing and which we are working with the different discoms is how we can get smart meters installed at our sites.
What the smart meters do they provide you the accurate billing that is reflected on that site. So I think that is a little bit of a longer term project. However the progress has started, we have started deploying in a few states more aggressively than the others. Right. So I think enabling the connectivity on the sides along with smart meters, plus whatever efforts we are putting on the renewable side, whether it is. And our storage solution is what is going to be making a positive change on the energy margin over the next few years.
Arun Prasad
Okay. All right. Thanks for the opportunity and all the way.
Prachur Sah
Thank you. Thank you, Arun.
operator
Thank you. The next question is from the line of alias Shakir from Motilal Oswal Mutual fund. Please go ahead.
Aliasgar Shakir
Yeah, thanks for the opportunity. Just follow up on the, you know, dividend policy. So last call you had indicated that, you know, the amount was lying idle and therefore being used for the acquisition instead of funding it through the debt. That is the normal route that was indicated. And as the board decides this, you know, acquisition will be rooted through the debt and the cash flow will be, you know, given for dividend payment. Now that we are, you know, I mean, shifting this, you know, 226, should one assume that basically the 25 cash flow that was used towards the acquisition will now remain there or that will also be available along with the cash flow being made in 2526 for the dividend payment whenever it comes through after the board decision.
Prachur Sah
I think there’s no. Change in the stance. I think like I said, you know, the cash has been generated, we have collected all the backlog receivables, most of it. And as part of our cash management, instead of keeping that cash idle, we have either reduced our debt or used it for a very strategic acquisition. But as and when you know, this decision to distribution happens, I think all that will be utilized. Right. So it is only a, you know, a cash management thing that we are doing. I mean, there’s no change in our stance from that perspective.
Aliasgar Shakir
Got it. So both 26 cash flow generation as well as what was available in the previous year will be available for dividend payment.
Prachur Sah
Yeah,
Aliasgar Shakir
understood. Very clear. Thank you so much.
Prachur Sah
Thank you.
operator
Thank you. Participants who wish to ask questions may press star and one at this time. Participants who wish to ask Questions may press star N1 at this time. At t his moment I would like to hand the call over to Mr. Prachor, sir, for the closing comments.
Prachur Sah
Thank you. To conclude, we are encouraged by the strong start to the year marked by healthy collocation additions and we remain focused on executing our strategic priorities with discipline and agility. We are also sharpening our emphasis on automation AI laying the foundation for a more agile and intelligent operating model at industry level. Structural growth drivers like rising data consumption, increasing 5G adoption and the network gap between operators continue to create meaningful growth opportunities. With the scale strength of execution readiness to adapt, we believe we are well positioned to lead this evolving landscape. Thank you all for attending this call.
See you next quarter. Thank you.
Vikas Poddar
Thank you.
operator
Thank you. Ladies and gentlemen, this concludes this conference call. You may now disconnect your lines. Thank you for connecting to audio conference service from Chorus Call and have a pleasant evening.