Indus Towers Limited (INDUSTOWER) Q2 FY23 Earnings Concall Transcript

Indus Towers Limited  (NSE:INDUSTOWER) Q2 FY23 Earnings Concall dated Oct. 28, 2022

Corporate Participants:

Tejinder S Kalra — Chief Operating Officer

Vikas Poddar — Chief Financial Officer

Analysts:

Kunal Vora — BNP Paribas — Analyst

Tanay Shah — Dolat Capital — Analyst

Falguni Dutta — Jet Age Securities Private Limited — Analyst

Pranav Kshatriya — — Analyst

Rakesh Sethia — HDFC Mutual Fund — Analyst

Ravi Agarwal — UTI AMC Limited — Analyst

Unidentified Participant — — Analyst

Utkarsh Mehrotra — — Analyst

Arun Prasath — Spark Capital — Analyst

Vivekanand Subbaraman — Ambit Capital — Analyst

Presentation:

Operator

[Operator Instructions] The conference is being recorded. Good afternoon, ladies and gentlemen. I’m Vandana, the moderator for this conference. Welcome to the Indus Towers Limited second quarter ended September 30, 2022 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 culminated post an announcement. Present with us on the call today is the senior leadership team of Indus Towers, Mr. Tejinder Kalra, COO; Mr. Vikas Poddar, CFO and Mr. Dheeraj Agarwal, Head Investor Relations. 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 risks that we face. I now hand over the call to our first speaker of the day, Mr. Tejinder Kalra. Thank you and over to you Mr. Kalra.

Tejinder S Kalra — Chief Operating Officer

Thank you, Vandana. Good afternoon everyone and a very warm welcome to all of you. Hope all of you guys had a great Diwali. Thank you for joining us on the earning call of Indus Towers for the quarter ended September 30, 2022. Joining me today are my colleagues, Mr. Vikas Poddar, CFO, and Mr. Dheeraj Agarwal, Head, Investor Relations. You all must be aware that following BImal’s exit myself and Vikas are jointly responsible for the functioning of the company till such time a permanent replacement is put in place. The Board is evaluating all talent options and we’ll make an announcement soon once the right successor is finalized.

Before I begin I begin our agenda today, I would like to reiterate Indus Towers’ commitment to work towards government’s digital inclusion goals by enabling connectivity across the nation. Our team of brave hearts with their commitment and dedication is the main driving force behind our achievements as we continue to deploy towers in the most remote areas with diverse topography to bring connectivity. During the quarter we installed towers in the remote locations such as border areas in J&K, Namsai area of Arunachal Pradesh, Bethali [Phonetic] in Karnataka by enabling Internet and mobile connectivity in these areas. At the, same time, we also braved severe floods and heavy rains in several areas during the quarter and yet our field force was unwavering in their commitment towards maintaining the network. We remain steadfast in our resolve to continue our efforts in the future as well.

Now, moving onto the key themes. I would like to discuss today. I’ll start with major industry developments. The government continues to take steps to simplify and accelerate the deployment of telecom infrastructure in the country in order to facilitate swift rollout of 5G services. The launch of Gati Shakti Sanchar portal has eased the right-of-way application process through a single window. This significantly eases the site acquisition process and leads to a much force faster creation of 5G infrastructure in the country. This is indeed a great positive step.

Now from a 5G rollout perspective, I would like to highlight the successful auction of 5G spectrum in August, followed by the start of 5G services in less than three months. The two main operators have already announced pan-India rollout of their 5G services in the next 18 months. This shows the commitment of the government and the telecom industry towards making 5G a reality soon across the country. It also underlines the role of infrastructure players in providing 5G-ready sites at speed and Indus Towers is already progressing well on this path of preparing its sites for 5G implementation.

In terms of the opportunity, we expect initial benefits to be in the form of revenue from additional loading. This will need more capacities — there will be need for more capacity with increase in adoption of 5G services which will eventually drive the demand for setting up more new sites. Now taking cues from the global 5G adoption, the trend remains encouraging. As per the statistics mentioned in the Ericsson mobility report, global 5G subscriptions grew by INR70 million in the June quarter to INR690 million and are expected to reach around INR4.4 billion by the end of 2027. Additionally the number of commercial 5G service providers also increased from INR210 in March 2022 to INR218 in June 2022. The report also estimates that 5G penetration in India will reach 40% to about 500 million subscriptions by 2027 as we also highlighted in our previous earnings call.

The data consumption story in India also continues to be robust and 5G network rollout will further the adoption. And this is going to increase the data momentum growth even further. The total data consumed across the top operators combined grew by 20% year-on-year in the June quarter. The average data consumed per user per month across the top three operators stood at more than 90 GB for the quarter exhibiting a year-on-year growth of over 19%. As per industry observers, Ericsson and Nokia India’s data usage is almost the highest in the world and the average data consumption per user per month is expected to increase to about 40 GB to 50 GB in the next five years. The constantly growing demand for data and upgradation to 4G and 5G should continue to drive the demand for capacity additions, both in the form of loading and new sites, which remains a primary growth driver for Indus Towers.

From an operational performance perspective, we witnessed a healthy growth in addition of macro and leaner towers. During the quarter we registered a net addition of 1452 macro tower and 1746 corresponding co-locations. Our total tower and co-locations at the end of Q2 was 187,926 and 3,38,128 co-locations respectively each growing by 2.4% and 1.7% on a year-on year basis. Our industry-leading tenancy ratio was largely flattish at 1.80. In addition to macro towers we also added 1,535 colocations on leaner towers in Q2 compared to a 1,021 colocations in Q1. As highlighted in our previous calls, we continue to see good traction in our leaner towers. We expect the demand for leaner structures to grow further with the increase in densification requirement and subsequently our leaner structure portfolio we want to build meaningfully to our business performance.

I would also like to move now to the ESG, which is one of our key priorities as a responsible organization. Our efforts are directed towards identifying and targeting material points in environmental, social and governance dimensions which will help the company in its sustainability journey. I’m pleased to share with you that we have identified key points across dimensions and finalized the targets. We have also finalized the implementation roadmap to achieve these targets and started working on it. In the upcoming quarters, we would be sharing progress for all these targets. I would now request Vikas to take you through the operational and financial performance of the quarter ending September 30, 2022 and I look forward to your questions. Over to you, Vikas. Thank you all.

Vikas Poddar — Chief Financial Officer

Thank you, Tejinder, and very good afternoon to all the participants on this call. So, I’m pleased to share with you the financial results of the second quarter ended 30 September. 2022. Before I go to the financials, let me spend a minute on our operational performance, wherein we have seen a pickup in our tower and colocation additions in quarter 2 as Tejinder mentioned. We closed the quarter with a total tower and colocation count at 187,926 and 338,128 respectively, each growing at 2.4% and 1.7% on a year-on-year basis and 0.8% and 0.5% on quarter-on-quarter basis. Over and above the net addition of 1,746 colocations on macro towers, we’ve also added 1,535 colocations on lean towers and as we have highlighted in the past, demand for leaner structure is rising based on the customer requirement for densification.

Moving on to the financial performance our reported revenues grew by 15.9% year-on year to INR79.7 billion wherein the core revenue from rentals were up by 12.5% year-on-year to INR47.8 billion. Our revenues include the impact of both the tapering of exit revenues and as shared earlier the company has settled its core dues with its customer and deferred the recognition of the revenue arising out of that settlement till the time of ultimate collection. A part of revenue from this settlement was recognized in Q4 of last fiscal based on the payment received as we had highlighted in our commentary for Q4.

In quarter 2 of FY ’23 the impact of deferred recognition on gross revenues and core revenues was INR11 billion and INR5.5 billion respectively. Adjusted for both the exit revenue and the impact of deferred recognition, our gross revenue and core revenues grew by 2.1% and 3.5% respectively year-on-year. On a quarter-on-quarter basis our reported gross revenues and core revenues from rentals grew by 15.5% and 13.3% respectively. Again after adjusting for the aforementioned two factors, gross revenue and core revenue were up 1.4% and 2.3% respectively.

Reported EBITDA was down 22.7% year-on year and 21.1% quarter-on-quarter to INR28.1 billion. Our EBITDA margin declined 17.6 percentage points year-on-year and increased 1.6 percentage points quarter-on-quarter to 35.3%. EBITDA was impacted due to increase in provision for doubtful debt. This is accounted under other expenses as we explained in the last quarters earnings call. In this quarter, we have made a provision for doubtful debt of INR17.7 billion. This number appears high as part of the payment received during the quarter was towards settlement of past issues which otherwise would have been received against the receivables outstanding thus resulting in lower provision for doubtful debt by about INR11 billion.

Adjusted for the impact of one-off items like the lower exit revenue the provision for doubtful debts and deferred recognition, EBITDA was up 1.1% year-on- year and 2.1% quarter-on-quarter. Our reported energy margins were at 14.6% in quarter 2. The energy margins were also impacted due to deferred recognition. We continue to drive sharp focus on optimizing energy costs by taking appropriate measures especially towards reducing diesel consumption. Our reported profit after tax declined by 44.1% year-on year and grew by 82.7% quarter-on-quarter to INR8.7 billion. Adjusted for one-off items our profit after tax was down 3.5% year-on-year and up 6.4% on a quarter-on-quarter basis. Our cash flow from operating activities for the quarter stood at INR11.2 billion in quarter 2 of fiscal 2023 compared to INR19.4 billion in quarter 2 of last fiscal 2022. Our free cash flow for the quarter was at minus 4.7 billion which was impacted by the collection challenges we currently face and also the higher capex cash flows during the quarter. Our reported pre-tax return on capital employed and post-tax return on equity for the past 12 months were lower both year-on-year and quarter-on-quarter basis at 19.2% and 24.2% respectively, again, impacted by the provision for doubtful debts.

Next. I would like to provide an update on the receivable situation. Our reported trade receivables increased by INR2.5 billion during the quarter. Adjusted for the provision for doubtful debt and the payment received towards settlement of past issues, our receivables increased by INR9.4 billion. We are closely engaged on this matter and working towards the payment plan which is why the customer has agreed to pay a substantial part of the build amount till December 2022 and 100% thereafter. It would also clear all accumulated outstanding dues as on 31st December, 2022 between January 2023 and July 2023. We continue to work on improving our receivables position and keeping a close eye on the situation.

In summary, our strong operational performance during the quarter is quite encouraging from the demand standpoint. Our financials continue to be impacted by the collection challenges we face from one of our customers. With the 5G rollout already in motion, we’ve been optimistic and prepared for the opportunities presented to the telecom infrastructure space as a whole.

I will now request the moderator to open the floor for question-and-answers, please. 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 the audio conference service from Airtel. Due to time constraints, we would request if they could limit the number of questions to two to enable more participation. Hence management will get only two questions per participant to ensure maximum participation. [Operator Instructions] The first question comes from Mr. Kunal Vora from BNP Paribas from Mumbai. Mr. Vora, you may ask your question now.

Kunal Vora — BNP Paribas — Analyst

Thank you for the opportunity. My first question is on the dues receivables. So Vodafone-Idea has offered convertible debentures to American Towers. Have you considered that is an option and how comfortable would you be in receiving payments rather than cash.

Vikas Poddar — Chief Financial Officer

So, thank you Kunal. Thank you for the question. So we are aware of the developments that have happened with our competitor. I think for us we haven’t really considered this as an option. We already have payment plan agreed with the customer which we already shared. So we would really want to see that payment plan sort of materializing and so far we haven’t considered any option of our convertible debentures.

Kunal Vora — BNP Paribas — Analyst

But what gives you the confidence that this payment plan can be — will they be able to make the payment.

Vikas Poddar — Chief Financial Officer

Well, the confidence is basically from the fact that there have been positive developments. I mean couple of months back we have seen the reforms package. We have also seen government support to the sector. Apart from that, we have also seen the customer participating in the 5G auctions and still investing in the market. So, we are quite closely engaged and monitoring the situation. Of course they have also sort of indicated that they are working on the funding plan and they are sort of close to finalizing that as well. So, I think we are watching the situation closely and we are seeing improvement. Hopefully, we will see the payment plan sort of materializing as I said.

Kunal Vora — BNP Paribas — Analyst

My second and last question. I wanted to understand how you’re looking at the revenues coming in from the 5G rollout. So, the operators have talked about rolling out almost pan-India 5G by end of FY ’24. So how should we expect your revenues over the next few quarters. Would you see any lift from 5G rollout and would it be front loaded or will it be back loaded into it.

Tejinder S Kalra — Chief Operating Officer

Kunal, hi. Thanks for the question and from a 5G perspective as we had said earlier the initial revenue from 5G is going to come in from loading of 5G equipment on the existing sites and that’s the trend we are currently seeing from the orders that we have received from the customer. We already are doing RFAIs around those sites and the revenue realization inventory build-up. Like the same way we have seen on the 4G site, standalone 5G sites eventually will come but that looks to be sometime away or a few quarters away. And once the data traffic on the 5G network continues to build up so in order to bid for capacity and for any coverage of hotspots there may be a need of standalone sites initially and then eventually those 5G standard alone sites will also come. So we see a positive development on our revenue in the next quarters once the loading builds on these existing sites and then let’s say, after about year and a half or so some more standalone sites coming up as well.

Kunal Vora — BNP Paribas — Analyst

Okay, that’s it from my side. Thank you.

Operator

The next question comes from Mr. Tanay Shah from Dolat Capital, Mumbai. Mr. Shah, you may ask your question now.

Tanay Shah — Dolat Capital — Analyst

Thanks for the opportunity. Am I audible?

Tejinder S Kalra — Chief Operating Officer

Yes Tanay.

Tanay Shah — Dolat Capital — Analyst

Yeah, so sir my first question is regarding the recent the NCD raise of INR2000 crores. Can you give us some color as to the purpose for which the fund is being raised.

Vikas Poddar — Chief Financial Officer

Yeah so I think first of all this is driven by one of the requirements that we have from the regulator wherein Indus is classified as a large corporate and we are required to comply with the provision of raising minimum 25% of our incremental long-term borrowing by way of debt securities. So, as per that circular we are really expected to comply with the provisions and our NCD issuance of INR2000 crores we have basically taken approval from the Board and we would be issuing NCDs in tranches in order to comply. So this was basically a regulation that was applicable on a block of two years starting FY ’22. So FY ’23 is our second year wherein we need to comply and then even subsequently the same regulation would still be applicable in ’24 and ’25. So we will be issuing tranches and when necessary.

Tanay Shah — Dolat Capital — Analyst

Understood.

Vikas Poddar — Chief Financial Officer

As far as the usage of the fund is concerned of course we will be using this towards our investment in growth and obviously you can see the rollout activity is picking up. So we will certainly need the funding for our capex.

Tanay Shah — Dolat Capital — Analyst

Sure. Fair enough. And sir my next, second question is regarding the deferred revenue recognition. I just missed that part. Can you just clarify as in it was INR11 billion and INR5.5 billion, right? You said in the–

Vikas Poddar — Chief Financial Officer

Yeah, INR11 billion of — we had a deferred recognition of INR11 billion in our total revenues and INR5.5 billion in our core service revenue. So, 5.5 is of course part of the 11 billion.

Tanay Shah — Dolat Capital — Analyst

Understood, understood, fair enough. Thank you so much. That’s it from my end. Thank you.

Vikas Poddar — Chief Financial Officer

Thank you, Tanay.

Operator

Thank you very much, Mr. Shah. [Operator Instructions] The next question comes from Ms. Falguni Dutta from Jet Age Securities Private Limited from Kolkata. Ms. Dutta, you may ask your question now.

Falguni Dutta — Jet Age Securities Private Limited — Analyst

I just have one basic question. The revenue that we mentioned, revenue from rentals this INR4,780 crores for the quarter and the gross revenue is INR7,960, so what comprises the difference.

Vikas Poddar — Chief Financial Officer

So basically within our revenue, our gross revenue we have two sources. One is the rental that we earn from our towers and then we also have our energy revenue which is largely coming from the passthrough of the energy cost that we built to our customers. So the difference just to make it simple for you, Falguni, the difference between the two lines is the energy revenue.

Falguni Dutta — Jet Age Securities Private Limited — Analyst

So the energy revenue would mean the costs that we incur. It’s just a breakup of the revenue between cost and the net that we get, to understand it correctly. Because the energy cost is the cost we will be incurring which we are passing on to the consumers. One is that and the other is the net rental composition, if you were to understand the gross revenue breakup. Is that correct?

Vikas Poddar — Chief Financial Officer

That’s right, yes.

Falguni Dutta — Jet Age Securities Private Limited — Analyst

Thank you, sir.

Operator

Thank you very much Ms. Dutta. The next question comes from Mr. Pranav Kshatriya from Novama [Phonetic], Mumbai. Mr. Kshatriya, you may please ask your question now.

Pranav Kshatriya — — Analyst

Yeah, hi. Thanks for the opportunity. I am just trying to get a sense on the realization. So we have seen the realization coming to around 41,500 thereabouts for the past few quarters if I adjust for that one of one-time revenues. Should we take this as a, you know, the base revenue and subsequently the rent revenue per tenancy to grow from here or there will be some impact of renegotiations happening as and when those tenancy complete their tenure and hence we might see the renegotiation impact going on. Just trying to get a sense on that.

Vikas Poddar — Chief Financial Officer

Yeah, so Pranav, let me let me put it this way. The average revenue per tenancy of 47,000 that you see is obviously overstated because of the deferred recognition. We also mentioned in our previous calls that this also reflects the renewal discount that we have already agreed with our customers that is roughly INR500 rupees per tenancy from an overall portfolio perspective, so that’s also baked in the numbers. Coming to the recognition and the sort of jump that we see in the average revenue, I think that’s pretty much come to an end and we have received all the payments pertaining to those settlements. So going forward, our average revenue should get back to much more normal levels. And as far as the future renewals are concerned like we have shared in our previous call, this renewal discussion and agreement that we have reached is a very good reference point, is a very good sort of benchmark for all future renewals and we don’t expect anything, any major changes to happen. So any future renewal coming up in the subsequent years will also be pretty much on the same lines and to that extent we will see some movement. So there is basically growth coming from 5G loading and so on which will obviously take our average revenues up and there will be in future maybe renewals and things like that. So it will be a mix of couple of things. Does that answer your question, Pranav?

Pranav Kshatriya — — Analyst

It does and my second question would be on how should we see the energy margin trending. Is there any renegotiation or anything happening on that front.

Vikas Poddar — Chief Financial Officer

I will probably just touch upon this energy margin and then I will maybe request Tejinder to also add a color from an operations perspective. So, energy margins in this quarter of course is very positive because of the deferred recognition. We continue to be on a passthrough model with our customers and like I’ve always said in the past, passthrough means no gain no loss but because we have usually some difference arising because of the actual cost and the expected cost and by the way these actual cost or expected cost can vary because of several factors that we face in our business. There could be seasonality. There could be high diesel consumption sometimes due to weather disturbances. There could be timing differences in electricity bills and so on. So we do face these gaps and that really causes the energy margin to fluctuate. We are trying our best to sort of drive a reduction in diesel which will obviously have a huge bearing on our — on these gaps and further, I think you heard Tejinder talking about the ESG. So even our ESG initiatives and all the focus on the operational efficiencies would help us in sort of bringing this under control going forward. Anything you want to add, Tejinder?

Tejinder S Kalra — Chief Operating Officer

No, you largely covered it, Vikas, and I think this energy margin is as Vikas rightly said, this is a function of the actual cost incurred versus the expected cost at the operator side and there could be variations at times given the weather disturbances which we continuously continue to face. The sites need obviously 24/7 operation that if easy availability at the sites is not consistent throughout you need to resort to the diesel generating sets and therefore the diesel consumption. During bad weather time and long EV outages tend to fluctuate and therefore the expected cost versus the actual costs vary. This leads into some kind of reconciliation challenges with the customer as well and which ultimately would get ironed out over time but reflects in the quarterly outcome. So broadly that’s where we are but we are obviously on a continuous journey towards reducing diesel as much as we possibly can through a lot of diesel replacement solutions and also EV continues to improve year-on year which obviously helps towards the EGG initiatives that we have imparted ourselves.

Pranav Kshatriya — — Analyst

Sure, thank you and all the very best.

Vikas Poddar — Chief Financial Officer

Thank you, Pranav.

Operator

Thank you, Mr. Kshatriya. [Operator Instructions] The next question comes from Mr. Rakesh Sethia from HDFC Mutual Fund, Mumbai. Mr. Sethia, you may ask your question now.

Rakesh Sethia — HDFC Mutual Fund — Analyst

Thank you for the opportunity. Can you help us understand based on your initial discussion, how large is the 5G rollout order for you guys. How should one think about it. What percentage of sites, what percentage of the co-location probably would have loading let’s say in the next 12 to 18 months, if you can share some details around that. And secondly, would it be possible for us to quantify ballpark what kind of revenue upside are we looking from the 5G loading.

Tejinder S Kalra — Chief Operating Officer

Thanks for the question, Rakesh. See, typically the way we have seen these technology shift rollout happening, the operators over a period of time will tend to cover 5G on all the sites they have with us or they have in the network. We have seen this already happening in the 4G space, so 100% of the operator sites how 4G rolled out on them. And this has obviously taken a long while and now they are beginning to setup stand-alone 4G sites as well. So over a period of time. I think the 5G follows a similar pattern. We already have seen good amount of orders coming in from the operators. The announced position from the operators is that within 18 months, starting from September end they want to actually cover out almost 500 towns in the country which would largely cover the entire coverage area that they have. So I would expect a good percentage of the sites already being deployed with 5G and then as the capacity builds up on these sites and data consumption scales up they would possibly then be coming up new 5G sites or standalone 5sites as well but this will take as I said earlier, a little bit more time beyond 18 months period of rollout that we are talking about. As for the extent of loading that one can expect, I mean we have already indicated in the previous call that we expect the 5G loading revenue to be higher than the 4G revenue level that we are seeing. This is largely because of the higher power loading that is coming on to the sites and the operators because they have chosen sub-gigahertz frequency, some loading from the additional antennas because 700 gigahertz would need a separate set of antennas in some cases. So that kind of antenna loading that will come on the sites as well. So a substantially higher loading compared to the 4G loading that we already have would come as the 5G loading revenue build up.

Rakesh Sethia — HDFC Mutual Fund — Analyst

Okay. First part, would it be possible to quantify that based on your initial discussion, what percentage of the sites we’re talking about. I mean, I understand that eventually 100% of the sites would move to 5G like it happened in the 4G. I’m just trying to understand what is the sort of the near-term plan. The reason I’m asking is in of course it can go to 500 towns but you know what percentage of the towns, I mean operators will always have a choice, right? I mean they can go just by — they may not need to do pricing on the entire town in one go. So I’m just trying to understand from a from a near-term perspective, let’s say over the next 12, 18 months, are we talking about 100% of the 5G sites, are we talking about probably a fraction of the sites. If there is any visibility you have around the same based on your initial discussions with the operators.

Tejinder S Kalra — Chief Operating Officer

Obviously, the operators are also yet finalizing the overall plan but from the initial understanding that we get from them them over an 18-month window, my understanding is anywhere in the vicinity of about 50% to 60% of the site, they may be covering, the operators maybe covering, I’ll not be able to give you any operator specific details but that’s largely looking to be the plan if operator are talking about 500 odd towns, then that would be the minimum they would need to do.

Rakesh Sethia — HDFC Mutual Fund — Analyst

Secondly on the loading revenues if you can also sort of clarify. My understanding was that some of the radiation [Phonetic] of the antennas are much lighter weight in the 5G technology. Does it have any bearing in the 5G or the loading revenues for us or not that will not have any bearing.

Tejinder S Kalra — Chief Operating Officer

See, while the 5G loading — 5G antennas or even the integrated antennas that you have on the 5G site yes, they are lighter in weight but as I said, the power that we need to set up at the sites or the load, the power load of the sites is higher in case of 5G and a big chunk of — the way the loading revenue is structured, there’s a big component coming from the power side as well. So since that is the power is higher therefore the loading revenue will be higher. We are expecting somewhere in the vicinity of 5% to 10% of our average revenue to be coming from 5G overall over a period of time.

Rakesh Sethia — HDFC Mutual Fund — Analyst

You were talking about the one energy part of the revenue, right? Or are we are talking about the aggregate energy plus non-energy–

Tejinder S Kalra — Chief Operating Officer

No, I am talking about the rental part of the revenue or the base revenue.

Rakesh Sethia — HDFC Mutual Fund — Analyst

Okay, understood. Thank you so much.

Operator

Thank you very much, Mr. Sethia. The next question comes from Mr. Ravi Agarwal from UTI AMC Limited, Mumbai. Mr. Agarwal you may ask your question now.

Ravi Agarwal — UTI AMC Limited — Analyst

Hello. Thank you for the opportunity. My question is largely around the Vodafone-Idea — so I was just trying to bifurcate the questions into a couple of ways. First is, sir, can you just tell me how much was the original total receivable from Vodafone-Idea before the write-off which has taken in the first quarter, the provisions which were made in the first quarter and how much is the outstanding right now after the second quarter provision, and what is the total receivables provision still outstanding from Vodafone and what is the aging. So that’s the first question and I’ll come back with the second question after this.

Vikas Poddar — Chief Financial Officer

So Ravi unfortunately we cannot disclose customer-wise information. So your questions regarding what is the receivable of Vodafone and how much is outstanding after the provision and aging, etc. unfortunately, we won’t be able to answer that in specific terms.

Ravi Agarwal — UTI AMC Limited — Analyst

I understand. So, should we expect any further write-offs because with what we understand from the previous call is that no major write-offs would be coming in the next quarters or largely all the write-off has been accounted for. But now the quarter isn’t seeing a larger provision. So how much can we expect in the next second half of this fiscal.

Vikas Poddar — Chief Financial Officer

Yeah, let me explain and this is very important point you have raised. I think first of all we have already shared the payment plan that we have agreed with the customer. And as per the payment plan like I mentioned, I would like to just sort of reinforce and reiterate that the payment plan also includes payment of the accumulated receivables in the seven months from January 2023 and July 2020. So currently we are providing because there is a delay and there is an aging issue and we are basically providing in order to hedge our balance sheet and de-risk the receivables situation. But I mean based on the payment plan currently we are not expecting any write-off. The payment plan envisages collection of the full dues and hopefully there will not be any write-off involved. Now coming to the other point within this question that you raised which is about the large provision in quarter 2, I would like to explain that. So while from an optic perspective you see INR17.7 billion provision for doubtful debts. But if you recall I did explain that part of the payments that we collected were basically towards the settlement of past dues, past issues which otherwise if we had not settled that then those collections would have been applied towards the outstanding receivables. And if that was the case then our provision for doubtful debts would have been much lower. So the INR11 billion that I mentioned which we collected towards the past dues would have been applied towards the current dues. To that extent. I think it’s a bit technical. The real bad debt or the real provision for bad debt needs to be looked at in conjunction with both the numbers. Does that make it clear, Ravi?

Ravi Agarwal — UTI AMC Limited — Analyst

So, the provision towards the current receivables would be INR6.7 billion. Is that number—

Vikas Poddar — Chief Financial Officer

Yeah, if you look at it that way yes it would be INR6.7 billion if we basically take the total collections in this quarter which is certainly lower than what we had in the previous quarter.

Ravi Agarwal — UTI AMC Limited — Analyst

So the previous quarters 1200 was entirely towards the — was nothing towards the past receivables and this 1,700 contains around 1,100 of the write-offs from the past receivables. Now if the understanding is correct the entire past receivables have been now been written off, right? And from the current new billings the payment plan will take care of that.

Vikas Poddar — Chief Financial Officer

Yeah, sorry just a correction, Ravi. You said the entire past receivable has been written off. It’s not the case of write-off. Like I said we don’t have any write-off. What I mentioned was the past issues have been resolved and we have deferred the recognition till the time of ultimate collection. In this quarter since we have collected the full amount we have recognized and hence to that extent the payment received towards our normal receivables is less.

Ravi Agarwal — UTI AMC Limited — Analyst

Sure, sir. Now coming back to the second question. What is the feature accounting policy we are looking to adopt. I mean just wanted clarification about the deferred revenue and how are we looking to account for the view billings which will be done and plus how would the energy charges with the tariff.

Vikas Poddar — Chief Financial Officer

Well as far as the accounting policies are concerned we don’t have really any change in our accounting policy. We basically had deferred the recognition like I said because we wanted to be sure about the collection and that has been the policy. So there is no change. What really could change is because we are constantly reviewing and reassessing the situation and like I shared in the previous quarter, we did adopt a more stringent ECL computation and as a result we had made a provision of doubtful debts of about INR12 billion in the previous quarter. That was based on the stringent. ECL computation which was a bit of a change. We will keep reassessing and in third quarter if we feel that things are not progressing as we expect then we might adopt a more stringent approach again but as of now there is no change and if there is any change we will certainly let you know.

Ravi Agarwal — UTI AMC Limited — Analyst

Sure. Thank you so much, sir.

Vikas Poddar — Chief Financial Officer

Thank you, Ravi.

Operator

Thank you very much, Mr. Agarwal. The next question comes from Mr. Arun Prasath from Spark Capital, Chennai. Mr. Prasath, you may ask your question now.

Mr. Prasath, you may ask your question now. The next question comes from Aved [Phonetic] from Omkara Capital, Mumbai.

Unidentified Participant — — Analyst

Thank you. Sir, my question is In terms of Vodafone-Idea. Mostly what I want to ask that the payment plan which you have submitted to them in the — which was disclosed in the media also, have they agreed upon that. How the Vodafone-Idea is, you know, given the answers to your basically the format which you have given to them in terms of payment plan and secondly what percentage of revenues is basically contributed by both Vodafone-Idea in your total revenue because you have stated that you are going to stop services will not be able to impact by the month of November or by the month of December. So, can you give some brief on that thing also.

Vikas Poddar — Chief Financial Officer

So, Aved, on the first point, the payment plan is basically what the customer has proposed and that payment plan was discussed in our Board and we have agreed in order to support the customer as a temporary support. As far as the percentage of revenue is concerned, I think like I said I’m unfortunately not able to disclose or share any customer-specific information here. So we will not be able to share what is the percentage of revenue from Vodafone. I think sorry could you just repeat your last question, Aved.

Unidentified Participant — — Analyst

Yeah, my question was that the top-line revenue which I think that you are not able to disclose in the call. My first question is in terms of the dividend policy, how the Company is doing in aspect of this and as I said before in terms of the dividend plan because you are facing lot of pressure from the VI, from Vodafone-Idea. So how the dividend policy is going to be there especially the Africa [Phonetic] business.

Vikas Poddar — Chief Financial Officer

Sorry. I didn’t — Okay so coming to dividend, I think our policy is very clear. The dividend is of course linked to our free cash flow. And we will certainly the free cash flow situation at the end of the year and make the decisions accordingly but we are fully committed to the policy and currently there is no change in the policy. I think, Aved, you also mentioned about Indus stopping services. I just want to put it on record that that is purely speculation. We have not mentioned this anywhere or sort of made any such statements. So I just want to make sure that it’s not, that it is purely speculation. We are working with the customer to sort of execute the payment plan and trying our best to make things normal.

Unidentified Participant — — Analyst

At least timelines, can you discuss or at least you can share in the next three or four months next six months it can be sorted out on the call at least. Do you have some idea also because a lot of investors are waiting for this. So at least you can give some tentative timeline let’s say in the next five months, six months [Indecipherable].

Vikas Poddar — Chief Financial Officer

So from a timeline perspective, I just want to reiterate what we shared earlier. From a timeline perspective the payment plan is getting a substantial part of our monthly billing every month till December 2022 and from January 2023 we expect two things to happen as per the payment plan. We expect 100% collection of the monthly billing and whatever will be the accumulated outstanding as on 31st December 2022, our payment plan basically says that those outstandings will be cleared in a phased manner over seven months starting January 2023 until July 2023, So I think from a timeline perspective this is the plan that we have agreed and this is the best indicator of the current situation.

Unidentified Participant — — Analyst

Yes sir, great. So, thank you for answering my questions and all the best. Thank you.

Operator

Thank you very much. The next question comes from Mr. Utkarsh Mehrotra from Shamsar [Phonetic], Singapore. Mr. Mehrotra you may ask your question now.

Utkarsh Mehrotra — — Analyst

Hi, thanks for the opportunity. Just one question from my side. So previously we had some collateral which basically has offsetting on delay in revenue from one of our two counterparties. The point forward given the fact that there has been delay in raising capital. So in worst-case scenario, do we have any similar plan going forward or how are you thinking about worst case scenarios in case, for delay in [Technical Issues]

Vikas Poddar — Chief Financial Officer

So Utkarsh, I think first of all regarding the security that we had as we had shared earlier, the entire security was sort of restructured and we received the money in the quarter 4 of last fiscal and also in this current quarter through the, basically the equity injection that the promoters have done. So we received almost INR30 billion in March and then some more funds in the month of July. So currently our primary pledge or the security that we have had been completely monetized. That is no longer there. Now coming to the worst-case scenario like I said we are closely monitoring. We are also assessing our. exposure and we will be making the right calls on the provisioning and if our ECL computation and methodology and our practice need to be tightened we will also adopt that in this quarter depending on how things progress. So really. I mean it is very difficult to predict what would be the scenario because that would be crystal-gazing. So I think to a large extent, we will keep watching and by the way the significant provisions that we have made in the last two quarters have already given us a very significant hedge on our balance sheet and I think to that extent the risk is less.

Utkarsh Mehrotra — — Analyst

Alright, thank you.

Operator

Thank you very much, Mr. Mehrotra. The next question comes from Mr. Arun Prasath From Spark Capital, Chennai. Mr. Prasath, you may ask your question now.

Arun Prasath — Spark Capital — Analyst

Thank you. Thank you for the opportunity sir. Sorry, last time the call got disconnected. I think my question is similar to the line of other participants regarding receivables. It is mostly answered but just to summarize what you are saying is that by December 2022, the receivable should peak out and then post it, it will only decrease. Is it the right understanding, sir?

Vikas Poddar — Chief Financial Officer

Yes, that is the expectation, Arun, based on the payment plan that we revealed.

Arun Prasath — Spark Capital — Analyst

Okay. Understood. Secondly on the leaner towers, you shared some data points this time. Can you give a little bit color on what is the cumulative leaner towers count and similar to total [Phonetic] count on those leaner towers.

Vikas Poddar — Chief Financial Officer

Yeah, so I think we started reporting leaner towers from previous quarter. So this quarter like I said it’s close to 1500. The previous quarter was 1,000 and then we also had a few sites that we rolled out in the last year. So I would say the data — sorry the base of lead towers is somewhere in the range of 3,000, a little over 3,000. So it’s still a small number compared to our total portfolio. But this is certainly picking up and we will see sort of this segment growing much faster in the coming quarters.

Arun Prasath — Spark Capital — Analyst

And this is not part of the total reported or to the colocations reported, is it right?

Vikas Poddar — Chief Financial Officer

Yeah, what we report is the macro towers and because this segment is very small, the segment of lean is very small right now it’s not significant and hence not included in the reporting.

Arun Prasath — Spark Capital — Analyst

Thank you very much.

Operator

Thank you very much, Mr. Prasath. We do have a follow-up question from Mr. Kunal Vora from BNP Paribas, Mumbai. Mr. Vora you may ask your question now.

Kunal Vora — BNP Paribas — Analyst

Thanks for the follow-up. So regarding the — so you did a booking of 1,100 crores of past dues of which INR550 crores pertained to energy and there is no additional cost which has come against that. How should we look at — does it mean that the cost has already been booked in the past and energy margins which we are looking at for the past quarter they would have been better considering the additional revenue.

Vikas Poddar — Chief Financial Officer

Yeah, so Kunal the way it works is, I mean whenever we have these gaps as Tejinder and I spoke about which is the gap between what is expected and what is actual and so on, we do have the sort of deferred recognition. We defer the revenue recognition till the gap is resolved and it had really accumulated and we resolve this. So certainly, I mean if we were to really go back and look at each of those periods where we had deferred the recognition certainly the energy margin would change slightly. So yeah you’re right that the INR5.5 billion that is sitting in the energy revenue does not have a corresponding, these are basically the revenues coming from the past periods.

Kunal Vora — BNP Paribas — Analyst

Similarly we have seen in last two to three years energy margins have been consistently negative. So it’s possible that we could have some offset of that also in the subsequent quarters.

Vikas Poddar — Chief Financial Officer

Well, like I said I mean we did sort of resolve a lot of these past issues as part of the one-time settlement that we did. So I don’t think we expect to really see such lump-sum recognition going forward. But of course this gap of expected and actual obviously continues in the diesel world. So to that extent, I think some reversals will keep happening, some recognition will keep happening but I don’t expect such large quantums going forward.

Kunal Vora — BNP Paribas — Analyst

Understood and lastly on capex any, can you talk about your expectations going forward considering that large 5G investment will be underway from telcos. Will that require some additional investment from your end as well.

Tejinder S Kalra — Chief Operating Officer

So, let me take that, Vikas. So, Kunal, on 5G site while, as I said 5G is coming as a loading on our existing sites, it could be a combination of new investments should the site need some electrical infrastructure to be upgraded or some mount to be put up and so on. So some sites maybe already ready to receive the 5G equipment and there could be additional capacity sitting on some of those sites because we are ultimately into sharing business. And some sites may already carry that capacity but in some sites we are kind of already sitting at the edge from a capacity perspective. We may need to increase the electrical infrastructure and therefore investment to that extent may be required for both mounting the antennas or the radio equipment on the towers, some mounts, so so it would be kind of averaged out cost on the towers when one is talking about hosting the 5G equipment.

Kunal Vora — BNP Paribas — Analyst

Understood. That’s it from my side. Thank you.

Tejinder S Kalra — Chief Operating Officer

Thank you, Kunal.

Operator

Thank you very much, Mr. Vora. The last question comes from Mr. Vivekanand Subbaraman from Ambit Capital, Mumbai. Mr. Subbaraman you may ask your question now.

Vivekanand Subbaraman — Ambit Capital — Analyst

Hi, thank you for the opportunity. I have only one question. When you spoke about the loading needs about 5G, you mentioned that the frequencies you mentioned about 700 megahertz, you mentioned about multiple antenna requirements and power requirements. Could you highlight the differences between 4G loading and 5G loading in the context of the revenue opportunity for you as far as 5G is concerned and why you believe that 5G will be a bigger loading opportunity for you than 4G. Thank you.

Tejinder S Kalra — Chief Operating Officer

Yeah, Vivek. So, the difference between 4G and 5G in terms of the equipment or the split radios there is none. So there is a split radio when it is coming if it is coming on the 5G space. In 5G typically there are two types of equipments. When it is in the 700 megahertz you have separate antennas and separate radio going up similar to what you see in the 4G space. When it is — in the 3.3 gigahertz space 5G solution you have the antenna and radio integrated and both of them are going up on to the tower from a 5G rollout perspective. The power load of that equipment is little higher compared to what you see on the 4G radio site and therefore as I said earlier, the rental revenues because loading revenue constitutes a big chunk of load and power, the way it is structured from a DoCo perspective because of the higher power load of these sites, the IP fee from a loading perspective is higher for 5G compared to the 4G. I hope that answers your question.

Vivekanand Subbaraman — Ambit Capital — Analyst

Sir, just one small follow-up. So you are the only one that has 700 megahertz and they talk about carrier aggregation, so which where they say that they are able to utilize all three bands of spectrum in tandem. So, does this still entail separate antenna and loading equipment the 700 megahertz or are they talking about some other technologies there.

Tejinder S Kalra — Chief Operating Officer

Carrier aggregation is primarily combining different frequencies and different carriers to give a better output. That primarily what carrier aggregation is but ultimately each spectrum frequency that needs to be fired would need a radio. So if it is 700, they need 700 megahertz radios to fire the 700 spectrum and if it is 900 or 1,800 or 2100 or 3.3 each one of them have separate radios. So radios need to be deployed at the site and then those different frequencies get aggregated which is what is carrier aggregation to give a better throughput or better capacity and so on. When it comes to the antennas. I mean there are only two ways. Either you deploy standalone 2 port 700 megahertz antennas or the tower or you have multiport antennas already deployed in which 700 band is covered. That means you have a wide band multiport antenna which would cover from 700 to let’s say 3,300. If that is available already at the sites which in Jio’s case, some sites they have then they don’t need to put up additional antennas, otherwise they will have.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay this is clear. Thank you so much.

Operator

Thank you very much, Mr. Subbaraman. At this moment I would like to hand over the call proceedings to Mr. Tejinder Kalra for the final remarks.

Tejinder S Kalra — Chief Operating Officer

Thanks, Vandana. So to sum up, our strong performance during the quarter is very encouraging and we expect the increased demand for telecom infrastructure to continue. On the receivable front, we are constantly engaging with the customer and monitoring this situation vigilantly. We are excited about the 5G rollout scaling up across the country which we believe would act as the next leg of growth for the entire telecom industry. Thank you all for joining the call today. Good luck to us.

Operator

[Operator Instructions]