Indus Towers Limited (INDUSTOWER) Q3 FY23 Earnings Concall Transcript

Indus Towers Limited (NSE: INDUSTOWER) Q3 FY23 Earnings Concall dated Jan. 25, 2023

Corporate Participants:

N Kumar — Chairman and Independent Director

Prachur Sah — Managing Director and Chief Executive Officer

Vikas Poddar — Chief Financial Officer

Tejinder Kalra — Chief Operating Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Arun Prasath — Spark Capital — Analyst

Mitul Shah — Reliance Securities — Analyst

Kunal Vora — BNP Paribas — Analyst

Siddharth Gupta — Voyager Capital — Analyst

Sachin Salgaonkar — BofA Securities — Analyst

Kishore Iyer — Cholamandalam MS — Analyst

Giriraj Daga — K M Visaria Family Trust — Analyst

Presentation:

Operator

Ladies and gentlemen, I’m Vandana, the moderator for this conference. Welcome to the Indus Towers Limited Third Quarter ended December 31, 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 are the Chairman and Independent Director of Indus Towers Mr. N Kumar, along with the senior leadership team of Indus Towers, Mr. Prachur Sah, MD and CEO; Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; 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, N Kumar. Thank you, and over to you, Mr. Kumar.

N Kumar — Chairman and Independent Director

Thank you, Vandana, and good afternoon, everyone. A warm welcome to all of you today afternoon. Thank you for joining us on the earnings call of Indus Towers for the quarter ended December 31, 2022.

As you all may be aware, Mr. Prachur Sah has joined Indus Towers as Managing Director and Chief Executive with effect from 3 January this year. He brings with him vast experience of about 22 years, spread across business domains, including operations, strategic planning, oil and gas management, among various other strengths he has. He is also known for building a culture that its value-driven and encourages innovation, while maintaining highest levels of safety, sustainability and governance. In his last role, he served as the CEO for the oil and gas vertical of Vedanta. And I have great pleasure in welcoming him to the Indus family and wish him all the success in the future.

I’d also like to take the opportunity to thank both Tejinder Kalra and Vikas Poddar for leading the Company commendably during the period before Prachur Sah joined us in September.

I’d now like to hand over the call to Prachur, to take you through the key highlights of our quarter Q3 FY ’23 and brief you on all question-and-answers. Over to you, Prachur.

Prachur Sah — Managing Director and Chief Executive Officer

Thank you, Mr. Kumar, and a very warm welcome to all the participants on the call. Joining me today are my colleagues: Mr. Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; and Mr. Dheeraj Agarwal, Head, Investor Relations.

I would like to express my delight by having joined Indus Towers, the largest passive infrastructure company in India and one of the largest globally. I believe this is an exciting time to be in the telecom space with India marching towards digitalization and the ongoing transition to 5G being a key enabler of the journey. Along with my leadership team, I tried to realize Indus Towers’ mission of enabling connectivity in every part of India.

Before I begin our agenda today, I would like to take a moment to recognize the contribution of our field force and its relentless efforts towards our vision of enabling Pan India connectivity. During this quarter, we installed six new mobile towers along the Kedarnath trek in Rudraprayag, which is one of the most popular religious places in India. These towers enable communication from Gaurikund to Kedarnath temple at an altitude of 12,000 feet. The connectivity is helping in transforming lives of locals, connecting pilgrims with their families and also making it possible to someone help during an emergency. We will continue with these feats of installing towers in remote and difficult terrains to enable digital inclusion.

Moving on to key themes I would like to discuss today. On the industry front, the government continues to take measures to aid the swift deployment of telecom infrastructure across the country. To this end, it is working cross sectors like NHAI, Ministry of Road Transport and Highways, Indian Railways to align their Right of Way policy with central notified policy for faster utilization of land, building available with them. Indian Railways have amended their policy and allowed IP1 infrastructure players to deploy telecom infrastructure on their land/property. Given the scale of railways and other institutional infrastructure, such actions would benefit in rapid rollout of telecom infrastructure, especially for 5G.

Talking about 5G, we are pleased to see that the 5G rollouts are in full swing as operators are working towards their plan for a Pan India 5G rollout in the next 12 months to 15 months. In less than four months of launch of 5G services, more than 50,000 5G base transceiver stations, i.e., BTS have been deployed across the country, with the top two operators together putting up more than 5,000 BTS per week in the current month. This number should increase as the operators accelerate their 5G rollout across the country. As the leading passive infrastructure player in the country, we are committed to facilitate the swift rollout of 5G services. We are seeing increased demand in the form of additional loading of 5G equipment on our existing sites. We remain well-placed to cater to this demand and maximize the opportunity arising out of it. As the network matures with greater 5G adoption, we expect that there will be a need for increased capacity as well driving the demand for new sites.

With regards to 5G adoption in India. We can draw parallels from the global 5G adoption story, which continues to play out strongly as confirmed by statistics mentioned in both Ericsson Mobility Report and the Deloitte CII report. As per Ericsson, global 5G subscriptions grew by 110 million in the September quarter to 870 million and are expected to reach 5 billion by the end of 2028, accounting for 55% of all mobile subscriptions. Comparatively, global 4G subscriptions increased only by 41 million with 5G expected to reach 1 billion subscriptions two years sooner than 4G. The number of commercial 5G service providers also increased from 218 in June 2022 to 228 in September ’22. As per Ericsson Mobility Report, 5G subscriptions in India are expected to reach 500 million mark by 2027 with a penetration of about 40%.

The formidable 5G adoption journey will further drive the already strong data consumption by the sizable Indian customer base. The total data consumed across the top three operators combined grew by 19% year-on year in the September quarter. The average data consumed per user per month across the top three operators stood at more than 20 GB for the quarter, registering a year-on-year growth of over 18%.

Complementing this growth in the estimate from Deloitte CII report that India is set to lead the smartphone industry with 1 billion devices by 2026. The report from both Ericsson and Nokia have also indicated the usage is among the highest in the world currently. And the average data consumption per user per month is expected to increase to around 40 to 50 GB in the next five years. The rapidly progressing migration to 4G and 5G, supplemented by strong data consumption should continue to fuel the demand for passive telecom infrastructure both in the form of loading on existing sites and installing new sites, and we remain well-positioned to address this demand.

Moving on to our operational performance. We’ve witnessed steady growth in addition of macro and leaner towers. During the quarter, we had net additions of 1,466 macro towers and 1,307 corresponding co-locations. Our gross co-location addition was healthy at 2,130. However, higher churn at 823 resulted in lower net additions. Our total towers and co-locations at the end of Q3 were at 189,392 and 339,435, respectively, each growing by 2.5% and 1.33% on year-on-year basis. Our tenancy ratio dipped marginally to 1.79 from 1.8, but continues to be among the best in the industry. We continue to see good demand for our leaner tower portfolio, adding 1,408 co-locations in Q3 after reporting an addition of 1,535 co-locations in Q2. Including leaner towers, our net co-location addition stood at 2,715 for the quarter. We believe that the need for capacity expansion and new sites will be primarily fulfilled to leaner structures and as a result, going forward, we are expecting a significant growth in the share of our leaner structure portfolio in our overall business.

I would now like to touch upon ESG aspect, which is a key component of our long-term business strategy as a responsible organization. We have started taking necessary actions for achievement of our set targets across environment, social and governance dimensions. I’m happy to report that we are making good progress on this journey. To name a few focus areas: we are constantly reducing our diesel consumption despite increase in energy demand at sites; we are bringing a full control our handling and disposal of our waste; workforce diversity and safety remain key focus areas and new initiatives has been taken to improve them further; a robust business continuity plan is in place to ensure zero or minimal disruption to network with fastest recovery during disasters. We are now extending it to all the critical areas across the organization. We are quite hopeful of our all-round efforts using desired results in our ESG journey and we will start reporting on the same in the coming quarters.

I would now request Vikas to take you through our financial performance for the quarter ended December 31, 2023, and I look forward to your questions. Over to you, Vikas. Thank you.

Vikas Poddar — Chief Financial Officer

Thank you, Prachur. And I’m pleased to share with you all the financial results of the third quarter ended 31 December 2022.

Before moving to the financial performance, I would like to present our operational performance. The total tower and co-location count was 189,392 and 339,435, respectively. Each growing at 2.5% and 1.3% year-on-year basis, and 0.8% and 0.4% on quarter-on-quarter basis. This was supplemented by an addition of 1,408 co-location in our leaner tower portfolio, taking our lean co-location base to 5,683.

Now coming to the financial performance, our reported revenues declined by 2.3% year-on year to INR67.7 billion, of which the core revenue from rentals was down by 5% year-on-year to INR41.7 billion. The year-on-year growth numbers were impacted by a combination of: tapering of exit revenues, discount and co-location renewal; optimization of site configuration by our customers; and change in revenue recognition pertaining to revenue equalization assets. Normalized for these factors, our gross revenue and core revenue grew by 2.6% and 2.8%, respectively, year-on-year. On a quarter-on-quarter basis, our reported gross revenue and core revenues from rentals were down by 15.1% and 12.7%, respectively. The decline was largely due to the high base effect of previous quarter due to deferred revenue recognition of past settlements. Adjusted for this, gross revenue was down 0.4% and core revenue was up 0.2%, respectively, quarter-on-quarter.

Our reported EBITDA declined 68% year-on-year and 57.8% quarter-on-quarter to INR11.9 billion. EBITDA margin was down 35.9 percentage points year-on-year and 17.8 percentage points quarter-on-quarter to 17.5%. The decline in EBITDA was mainly due to a provision for doubtful debt of INR22.7 billion. The provision for doubtful debts is higher as the customer has indicated challenge in complying with the higher payment plan in future until fundraising materializes. Accordingly, the Company has adopted stringent ECL computation resulting in additional allowance for doubtful debts during the quarter. Normalized for these factors, EBITDA grew by 3.5% year-on-year and 1.5% quarter-on-quarter.

Our reported energy margins were at negative 1.2% in quarter three FY ’23 compared to 14.6% positive in quarter two FY ’22. Adjusted for one-off in the previous quarter, energy margins were at minus 1.2% in quarter three compared to minus 3.5% in the previous quarter. Our constant endeavor to drive operational efficiency in our energy portfolio, coupled with seasonal benefits, have aided the sequential energy margin improvement. We have reported a loss of INR7.1 billion for quarter three FY ’23 impacted by the substantial provision for doubtful debts and an exceptional item related — relating to impairment of revenue equalization as such.

As per Ind AS 116 accounting, revenue is recognized based on straight-lining of rentals over the contract period and the corresponding revenue equalization asset discrete. The revenue equalization asset of INR4.9 billion for the aforementioned major customer was impaired during quarter three FY ’23, in addition to the non-recognition of INR0.7 billion pertaining to revenue equalization for the quarter FY ’23. Normalized for these items, our profit after tax grew by 4.6% year-on-year and by 3.3% on quarter-on-quarter basis.

Our cash flow from operating activities improved from INR11.2 billion in quarter two FY ’23 to INR22.7 billion in quarter three FY ’23. And our free cash flow for the quarter was at INR6.2 billion. Our reported pre-tax return on capital employed and post-tax return on equity for the past 12 months were at 12.5% and 12.3%, respectively, impacted by the provision for doubtful debts and impairment of revenue equalization assets.

Moving on, I would like to apprise you of the receivable situation. Our receivables decreased by INR14.4 billion during the quarter to INR50.6 billion. Adjusted for the provision for doubtful debt, our receivables increased by about INR8.3 billion. The customer paid a part of the billed amount till December as per the agreement. However, with no fundraising in sight, it is likely that the customer will face challenge in complying with the higher payment plan as committed. Accordingly, we have taken measures to derisk the balance sheet. We continue to watch the developments at the customer’s end, pertaining to the fundraise plan, which is critical for clearing its old dues with us.

In summary, we had a steady quarter from an operational performance standpoint, our financial performance is reflective of the collective — collection challenges we faced from one of our major customers. However, the rapid rollout of 5G services across the nation provides a growth runway to the telecom space, and we remain optimistic about it.

I would now request the moderator to open the floor for question and answers, please. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question comes from Mr. Sanjesh Jain from ICICI Securities, Mumbai. Mr. Jain, you may ask your question now.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, good afternoon. Thanks for taking my questions. I got a couple of things. First on the 5G loading opportunity. I just wanted to understand purely from the ability to load the 5G equipment on the existing towers. Do we have enough provision for an operator to come and load 5G? And if possible, on how many bands can they rollout simultaneously? Or do you think there will be a situation where the operator has to shift to a fresh tenancy for loading this 5G site? How is the situation on the space availability of the tower purely from the 5G rollout perspective? That’s number one.

Follow-up on the 5G. In the opening remarks, we did mention that the weekly run rate of 5G site addition is 5,000 per week. We have already done 50,000 of it. At our weekly run rate of 5,000 by next 12 months, we will be rolling out close to 250,000 BTS, which is more than the tower. So when we say BTS, what does it mean or is — at this speed you anticipate a complete 5G loading on the existing towers? How should we see the rollout plans and what are you seeing on the rollout side by the operator? So these are my first initial two questions.

Tejinder Kalra — Chief Operating Officer

Yeah. Thanks for the question, Sanjesh. First to answer on, whether do we have enough capacities pace and the loading capacity on the existing towers? The answer is most of the towers, yes. So far, whatever rollouts we have done, we have not faced any challenge, where we have to refuse a loading of 5G on any of the existing towers. What typically goes on the tower is the radio. And from antenna, in some cases, especially in the areas where — and one of the operators case, for example, 700 spectrum for 5G is being rolled out. So some sites, they have either put up antennas, otherwise, they may have multi-band antennas and therefore, no antennas required there as well. So limitation in terms of space and capacity on the towers is not an issue. Today, 5G is allowed only in 700 megahertz and 3.3 — 3.5 gigahertz band. Should the operator need to reform the existing frequencies into 5G, those radios are already up on the towers. So they are not going to come in as additional loading on the towers, but it’s just a frequency switch from, let’s say, 4G to 5G or 2G to 4G or whatever. So limitation none when it comes to the loading capacity on the towers. I think we are good with that, and I don’t think the operator would need to go to an additional site for rolling out their 5G requirement there.

Second — your second question was on the 5G BTSs, and 5,000 run rate and the total number of towers they have and so on. In case of one of the operators who is rolling a stand-alone 5G network because they are rolling out in 700 megahertz and 3.5 gigahertz, there are to radios per frequency — sorry, one radio per frequency, and therefore, two for that operator on a particular site. The other operator is only rolling out in the 3.5 gigahertz, so therefore one radio. The BTS which we referred to is the frequency-specific radio on a site. So if there are two frequencies of one operator and one of another operator on the same site, then there are three BTSs going on the same site. So therefore, the count which you’re calculating in terms of number of towers and so on, I think that’s the way to look at it.

Sanjesh Jain — ICICI Securities — Analyst

No, fair enough. Now I got a fair idea. Second on the opportunity to further expand the tower footprint and considering that initially 5G will largely come in loading and consultant that one operator is using 1,800 as an uplink and other operator 700 as an uplink. Which put me to a thought that we may not see a tower upside from the 5G rollout, it can largely get respected from a tower company perspective just being a loading opportunity from the 5G. Just wanted to get your thought around the opportunities in the 5G, will it be limited as a loading for us as a tower company? That’s number one.

Number two, considering that the capacity creation is happening on the 5G, is it fair to understand that the 4G rollout may see a material slowdown and hence a lot of tenancy slowdown we saw in this quarter as a resultant of that?

Tejinder Kalra — Chief Operating Officer

Okay. So let me answer both the questions one by one. One, when we’re talking about whether 5G is going to be primarily a loading opportunity or are there going to be new sites that are going to be required for 5G? Initially when the operators are doing the 5G coverage on their existing network, it is yes, largely going to be a coverage or a loading kind of an opportunity for the TowerCo. But as the data and the capacity utilization is going to build up on the 5G layer, operators will certainly need additional sites to fill up the capacity gaps and the coverage gaps that are going to come up as a result of the data utilization that is going to build up into 5G layer. So that certainly maybe depending upon how quickly they are going to do the 5G rollout in the country or how fast the data capacity builds up in the network could be anywhere between one to two years before new stand-alone sites are required for 5G.

When it comes to 4G, the way the networks are being rolled out because we are currently still not seeing 5G as a blanket coverage layer. You will need a layer of 4G for giving the contiguity of data coverage across the geography. So we don’t think 4G is going to slowdown. It is — we are actually seeing the opposite, 4G equal amount of loading going up on the existing sites to take care of the data needs and then 5G is being built-up parallely. So we don’t see 5G, 4G slowing down. In fact, a lot of rural coverage, the operators are going to be approaching, apparently initially going to be happening on the 4G space as well. So both are going on parallely at the moment.

Sanjesh Jain — ICICI Securities — Analyst

A last set of questions largely to Vikas. One, purely on the accounting side, straight-line method, what we have discontinued and which has resulted in RTP coming down. Is it only restricted to this one operator or as a policy, we have done it for all the operators? That’s number one.

And number two, on the capex, the quarter we have seen an acceleration to a INR1,000 crore. It is just to reinforce the 5G loading and hence to augment the batteries and the DG set capacity, that’s the reason why the capex has gone up? Yeah, these are my last questions. Thank you.

Vikas Poddar — Chief Financial Officer

Yeah. Sure, Sanjesh. So I think as far as the accounting treatment for the revenue equalization asset is concerned, that’s specific to the operator because of the uncertainty that we’re facing. The other operators continue to basically be treated under the Ind AS 116 accounting.

And on the capex side, broadly, I think there are two drivers that we had in quarter four. So one of them is, of course, what you mentioned, the 5G-related augmentation in our power infrastructure and so on. And the second driver is also the fact that we are basically seeing operational momentum in terms of new rollouts and newbuilds. So they are pretty much work in progress and we are sort of investing in that area.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough, Vikas. Thanks for all the questions and best of luck for the coming quarters.

Operator

Thank you very much, Mr. Jain. 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. Thanks for taking my questions. My first question is on the receivables, sir. I think since this receivable issue started in the early part of the last year, we kind of said that post December 2022 operator has agreed to increase his payout. But now it seems like all the hopes are based on their ability to raise the funds. So my question is, sir, if they are not able to raise the funds, what are the options we’ll have at our disposal to collect the regular invoice amount plus the pending amount? That is my question number one.

Prachur Sah — Managing Director and Chief Executive Officer

To be honest, I think — Arun, thanks for the question. I think the situation is a little bit dynamic. So we are working with them to understand the funding situation and our actions will be based on what we receive. So I think we have done — as Vikas mentioned, we have done a derisking of the balance sheet in the interest of the [Indecipherable]. And we’ll continue to look at the situation on how the payments come and we’ll make calls accordingly.

Anything you want to add?

Arun Prasath — Spark Capital — Analyst

So I was asking, as per your MSA and under the contractual terms, what are the options you have at your hand to collect in case they are — they continue to prolong this delay?

Vikas Poddar — Chief Financial Officer

So I think, Arun, as Prachur also mentioned, I think, we are working closely, we are fully engaged with the customer, there are options that we are evaluating. We will certainly consult and take the guidance of our Board eventually. So all those things are basically currently being evaluated. So it’s very difficult to really — because it’s a dynamic situation, it’s changing every week, every month, so it’s very difficult to really talk about any specific action right now. But certainly, I can assure you that there is a lot of focus from the senior management, as well as the Board members to get to a solution on this one.

Arun Prasath — Spark Capital — Analyst

Okay. My second question is on the tower addition in the last one year. It seems that one of the anchor tenant added more than 25,000, 30,000 towers in, say, calendar year ’22, whereas in our case, of that, we have just got around close to 4,000 to 4,500 towers, so basically a market share of less than 50 percentage, whereas in the previous year, almost close to 45 percentage to 50 percentage. So how should we look at this from this — from the market share perspective? Is it some way related to our inability to invest because of the ongoing receivable issue? Or is it generally we have been losing market share in the open market?

Prachur Sah — Managing Director and Chief Executive Officer

I mean, in general, there is — this question can be answered in two parts. I think when you look at the market share, when it comes to macro sites, I think we are currently doing about 53% of the newbuilds. We may be started late in the game, it’s probably the leaner towers, which means — which we are starting to catch up now. And we believe we will be completing equally very soon. So I think that’s what I would like to speak.

Anything else you want to add, Tejinder?

Tejinder Kalra — Chief Operating Officer

No. I think the volume wise, as — Arun, as Prachur rightly said, scale up of the macro towers is happening. Obviously, in some cases, the — when — if the operator has a sharing opportunity on a nearby tower, that always becomes their first preference because of the speed-to-market sometimes and obviously from a cost perspective, duplication of asset is avoided. But nevertheless, we are now scaling up the numbers and also trying to see how we can reduce the TAT for building up the sites as well and bring the demand towards the operator. So that scale-up is currently ongoing.

Arun Prasath — Spark Capital — Analyst

So going forward, can we assume similar kind of a steady-state additions even if the rent covenant [Phonetic] dispatch more than — or continues with the current pace?

Tejinder Kalra — Chief Operating Officer

Our run rate in the coming quarters should increase given the requirement that we see from the operators and the way they are expanding the network.

Arun Prasath — Spark Capital — Analyst

Okay. Thank you. And as a follow-up to the foreign capex question raised by the previous participant. The current capex is — will continue to be higher than the — will continue to be there in the coming four quarters as well? I think [Phonetic], this is close to around INR250 crores to INR300 crores on a quarterly basis. So that means annually there is a INR1,000 crore increase in the capex.

Vikas Poddar — Chief Financial Officer

Arun, unfortunately, we cannot give you any forward-looking view or outlook here. But pretty much like I explained the quarter three capex spend higher is largely driven by the 5G augmentation and basically the momentum — the increase in the momentum that we’re seeing in our rollout. So, I think pretty much — this sort of a stable business-as-usual investment is clearly that we see going forward.

Arun Prasath — Spark Capital — Analyst

Thank you. Yes. That’s it from me.

Operator

Thank you very much, Mr. Prasath. [Operator Instructions] The next question comes from Mr. Mitul Shah from Reliance Securities, Mumbai. Mr. Shah, you may ask your question now.

Mitul Shah — Reliance Securities — Analyst

Thank you for giving me the opportunity. Sir, first question is on this exceptional item of INR4.9 billion. Sir, can you give some details on this?

Vikas Poddar — Chief Financial Officer

Yeah. So, Mitul, the — as per the Indian Accounting Standard 116, which is on the lease accounting, the — basically the long-term revenue contracts have to be recognized on a straight-line basis over the contractual period and accordingly, there is a revenue equalization asset that gets created. Now, in the case of this particular customer because there is a challenge that is clearly visible to us, it is very uncertain that those long-term contractual revenues will be collected, so that element of uncertainty because of which we have impaired that revenue equalization asset pertaining to this customer. And that amounts to INR4.9 billion on our balance sheet, which we have impaired. So that’s the exceptional item that we have disclosed in this quarter.

Mitul Shah — Reliance Securities — Analyst

Any visibility over near-term in terms of similar amount or similar pipeline is that repeated in coming quarters, or it is almost done?

Vikas Poddar — Chief Financial Officer

So specific to this customer we have impaired the entire revenue equalization asset. Along with that, we have also stopped recognizing the revenue equalization-related revenue in this quarter, which is a INR0.7 billion I spoke about. And to that extent, obviously, we will follow a very consistent practice going forward.

Mitul Shah — Reliance Securities — Analyst

Okay. Sir, second question is on provisioning 22-point — INR22 billion-plus provision. Do you see now it is more or less done and the quantum could be much lower in coming quarters? Or still there is uncertainty on that side?

Vikas Poddar — Chief Financial Officer

Again, that’s a bit forward-looking, Mitul. So I would only say that, we have basically derisked our balance sheet to a large extent recognizing the uncertainty as far as the collections are concerned. Clearly, the higher payment plan that I was talking about in previous quarter sort of is dependent on the funding which has not materialized yet. So there is a higher uncertainty that we’re facing. So accordingly, we have derisked the balance sheet by providing the INR23 billion roughly on account of the customer, which takes care of a large sort of outstanding sitting on our balance sheet. Going forward, there might be more provisions, but it’s difficult to quantify at this stage, because like Prachur said, it’s a dynamic situation, and a lot will depend on how the payments are received or the collections happen going forward. So, we will see how it goes.

Mitul Shah — Reliance Securities — Analyst

Sir, in terms of revenue breakup, can you give approximate number, this customer’s contribution currently?

Vikas Poddar — Chief Financial Officer

Mitul, again, I mean, this is — we really don’t give customer-wise information because of the confidentiality that we have with the customer. So, unfortunately, I can’t help you with that.

Mitul Shah — Reliance Securities — Analyst

Sir, last question on this earlier discussion that you are indicating that 4G is still ramping-up despite 5G already launched and we also indicated in one of the report that by 2027 40% would be the 5G penetration. So whatever could be the penetration maybe 20%, 30%, 40%, by what level of penetration of 5G you think that 4G will then — will slow down or will — or reverse [Phonetic].

Tejinder Kalra — Chief Operating Officer

So, Mitul, I think this question operators can obviously answer better. But what we are seeing from the scale of rollout the operators are doing, they are almost trying to get to, let’s say, more than 90% of the sites with 4G coverage. And that means, all existing sites and some — we are also seeing a trend of fresh stand-alone 4G sites being set-up as well. Because of the handset penetration, probably, I don’t think 4G is slowing down at the moment and 5G penetration of handsets all of us know where it is, at this moment. So we clearly don’t see 4G stopping. Depending upon the geographic coverage and what strategy, the operators would like to take on rolling out 5G and which cities and rural, how they want to handle it. Currently, the visibility which we see is still 4G expanding for some more time before we can say 5G is the only technology growing. We see both happening for now.

Mitul Shah — Reliance Securities — Analyst

Thank you and the best.

Prachur Sah — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you very much, Mr. Shah. The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai. Mr. Vora, you may ask your question now.

Kunal Vora — BNP Paribas — Analyst

Yeah. Thanks for the opportunity. My first question is on the receivables. So is it fair to assume that most of the old receivables are now provided and the receivables which you have now are mostly for the current quarter? And also this quarter, the receivables increased by about INR8 billion [Phonetic], excluding the provisions. Going forward, is that a trend which you can look at? And what’s the payment understanding you have now from the customer from whom you are not receiving payments?

Vikas Poddar — Chief Financial Officer

Yeah. Thanks, Kunal. So, I think a substantial part has been derisked with this provision that we have created in this quarter. And as far as the payment understanding is concerned, like we said earlier, I think the discussions are ongoing. We haven’t received any sort of new payment plan or a revised payment plan. So pretty much, we are still hoping for the current plan to sort of guide us as far as the future is concerned. So we are in discussions and if there is any update, eventually we will let you know. But right now there is no revised payment plan that we have.

Kunal Vora — BNP Paribas — Analyst

Sir, just to understand, like October to December whatever billing you’ve done, what proportion of that you would have collected?

Vikas Poddar — Chief Financial Officer

I think, I would say basically, a significant part was collected, but certainly it was less than 100%. So basically I — really, because these are — these percentages do vary. So I really don’t want to peg a percentage here, but rest assured that we are collecting a substantial part, but there is still a part that is — that remains uncollected, which is why our receivables are going up. And we are working on this.

Kunal Vora — BNP Paribas — Analyst

Sure. Sir, my second question is on the advantages and disadvantages of leaner towers. Would you consider shutting some of the macro towers and replacing them with leaner towers? Are there any opex advantages and if you can talk about the capex, opex economic for the leaner towers? Incrementally should we expect mostly leaner towers getting constructed?

Tejinder Kalra — Chief Operating Officer

See, leaner towers both from a capex spend perspective, as well as from an opex perspective for the operator are definitely economical. And depending upon the rural or the urban requirement because urban densification is to happen, there are very few possibilities of setting up these macro big towers. And a lot of rural and lean sites are now getting into the rural densification of the network.

When it comes to the rural coverage, still there are certainly ground base sites that need to be set-up, but those structures are also becoming leaner and therefore, capex wise economical and opex wise economical as well.

Coming to whether we will be shutting down any of the towers, I don’t see that happening, unless otherwise in some cases where because of the operator network orientation reasons they choose to exit any site. And if a tower is becoming vacant, we will, obviously, in that case hold up the tower and kind of exit there. But other than that, we don’t see anything like that coming to us from the operators for now, where they want to close down the bigger towers and go to the smaller ones. The new are being certainly set-up as the leaner structures to a large extent.

Kunal Vora — BNP Paribas — Analyst

Sure. And the leaner towers, what’s your return expectations? Assuming that there is a single tenant, what kind of return on capital would you expect for these towers?

Vikas Poddar — Chief Financial Officer

Yeah. Typically, I think we have shared this in the past also, Kunal. I think for leaner towers, our — because they are capex light, opex light sort of structure, our return profile is better than the macro towers at a single tenancy level. So typically we get somewhere, let’s say, high-single-digit to a low-double-digit sort of a return profile from the leaner towers. But again, it depends on geography, on the circle, various other factors, but broadly, high-single-digit to low-double-digit.

Kunal Vora — BNP Paribas — Analyst

Sure. Sir, I have one last question, which is even as we saw the growth capex increase. We didn’t see any increase in rental revenues. So would that happen with a lag?

Vikas Poddar — Chief Financial Officer

Yeah, certainly. I mean, the growth capex that you see is basically, like I said, a lot of it could be work in progress as well. So certainly, the revenue will happen with a lag. But like I said, I mean, in terms of our — when I explained the sequential growth and the year-on-year growth, there are other factors also because of which you don’t see that in the numbers yet.

Kunal Vora — BNP Paribas — Analyst

Okay. That’s it from my side. Thank you very much.

Operator

Thank you very much, Mr. Vora. The next question comes from Mr. Siddharth Gupta from Voyager Capital, Mumbai. Mr. Gupta, you may ask your question now.

Siddharth Gupta — Voyager Capital — Analyst

Hey. Good afternoon, sir. I must express my disappointment with the evasive answers with regard to the operator that we’re not naming because — I mean, it’s quite obvious that the Board is cognizant of the fact and they’ll be engaging with the company. My question is twofold. Firstly, do we [Indecipherable] like you’re negotiating on a payment plan, do we have any security in terms — from the operator in terms of one of their foreign promoters stake in our existing companies left with us? And if yes, what is — does the Board have a contingency plan as to when would this be encashed against their particular payment? Because this is clearly working [Phonetic] the company on a very, very deep level. And the security being shares of our own company, the market cap of which is eroding rapidly. It is a major cause of concern for all investors. If you can — if the management could shed some light and that would be great. Thank you.

Vikas Poddar — Chief Financial Officer

Yeah. Sure, Siddharth. So, I fully acknowledge the concerns that you’ve raised, I think clearly, like we said earlier, all of us are working on this particular issue. It’s a serious issue we realize. As far as the payment plan and the security is concerned, if you look at the history, we were certainly secured to a large extent through the primary pledge from the promoters. And that was sort of monetized through a deal back in the quarter four of last fiscal. And we did receive the proceeds of that in the month of March and subsequently some more in the month of May and June. So we did manage to control our receivables with the security that we had. Subsequent to that, we do hold some secondary pledge on some more shareholding of the — of one of the promoters. But because that’s a secondary pledge, we don’t think there’s much value left in it based on the market share price today, etc. So pretty much the trade receivables that we have with the customer are largely unsecured at this point of time. And as I said earlier, we are working towards the resolution. But there is no sort of revised payment plan or an update on the payment plan yet.

Siddharth Gupta — Voyager Capital — Analyst

Okay. So does the Board have a tentative mindset as to when — by when do we call it quits and we drag the company towards being, say, the IVC or till when do we negotiate with the company at within a timeline, like even if it’s a broader one that could be presented to the investors?

Prachur Sah — Managing Director and Chief Executive Officer

Yeah. Siddharth, I think to be honest, I think, at this time — currently, we are discussing with the Board. I think we have — we are engaging with the customer. So as I said — as Vikas is also mentioning, as we move forward and depending on the payments that we get, right, we will enact that plan and we share with you. But as of now, our intention is to keep working with the customer [Indecipherable]. And so — and we are all fully cognizant of what needs to be done as well. So, we’re working on that.

Vikas Poddar — Chief Financial Officer

I just want to add, Siddharth, that until December the payment plan basically envisaged the part payment of the dues and that plan has been made. So January is pretty much the first month wherein a higher payment plan needs to materialize and we are watching that situation very closely.

Siddharth Gupta — Voyager Capital — Analyst

Okay. Thank you so much.

Operator

Thank you very much, Mr. Gupta. The next question comes from Mr. Sachin Salgaonkar from BofA, Mumbai. Mr. Salgaonkar, you may ask your question now.

Sachin Salgaonkar — BofA Securities — Analyst

Hi. Thank you for the opportunity. Couple of questions. I think in your press release you guys indicated that there are challenges with one of that operator to complying with your higher payment plan in the future. So the question now here is, if one operator can’t pay higher payments, then what incentives do other operators have to comply to that higher payment? Because anyways you guys are not taking any significant action against that operator, right? You’re not shutting down their towers, you guys have no secured amounts from that. So, I mean, at some level other customers of yours are forced to pay slightly higher, which — one of the operators is not doing. So how do you resolve this issue between all three operators?

Vikas Poddar — Chief Financial Officer

You’re raising a very interesting point, Sachin. I think first of all, I think we need to understand that as per the MSA, if there is any delay in the payment, the MSA provides for the interest to be charged for the delayed payment. So it’s a very important point because the customer who is delaying payment is basically charged interest. So if the other customers adopt a similar way to delay payment, then there will be an interest cost involved. So that is one factor.

And the second important factor for us to realize is, it’s not the same situation with all customers. I mean, our customers are at different stages. We have one customer with a very difficult financial situation, very stretched financial institution as we all know, whereas the other two customers are that way healthy. So I don’t think, simply because one of the customer has less ability to pay should really put a question on the ability of the other two customers. So currently we are not seeing that situation. And I hope we’ll sort of continue to see cooperation from other customers.

Sachin Salgaonkar — BofA Securities — Analyst

Okay. And what is the probability that you guys might waive off that interest payment from one of this customer who is not paying? Because we are not able to collect the current money and we are also expecting interest to be collected, right?

Vikas Poddar — Chief Financial Officer

Yeah. So we have collected interest from the customer. So it’s not that we are waiving off. And that’s reflected in our finance income in this quarter. So we did manage to collect interest on the delayed payments.

Sachin Salgaonkar — BofA Securities — Analyst

Because one of the statements what you guys have also mentioned in your press release is that, ability as a going concern of this entity. If that is the scenario, how should we look at that?

Vikas Poddar — Chief Financial Officer

Well, we have relied on the auditor statement and basically the entity is seen as a going concern, of course, with some dependencies on their lenders and other parties. But I think we sort of maintain that position. If there is any change in that position, and accordingly, we will do the needful.

Sachin Salgaonkar — BofA Securities — Analyst

Okay. And when could we get an update? Because for last more than one year, obviously, you guys are engaging with the customer. Your Board is cognizant about that. And I do acknowledge, it’s an evolving situation. But how far are we away from getting some kind of a resolution, assuming there is no fundraising happening at that operator?

Vikas Poddar — Chief Financial Officer

I think if you look at it that way, I think we have been progressing on this. It’s not that we haven’t made progress. So at different stages in different quarters, we have made progress and we have updated. Like I said, till about March quarter and the June quarter, we had the security and we were monetizing that security and managing receivable. Thereafter, we did engage with the customer and negotiate a payment plan. And we were sort of working towards that plan, obviously, subject to the fundraising, which has not materialized. So there are discussions ongoing and we are keeping the investors updated on that. And if there’s any further update, we’ll certainly let you know.

Sachin Salgaonkar — BofA Securities — Analyst

I know you guys are making progress, but sometimes it looks like one step forward two steps backward, right, because again, we are seeing an additional allowance of doubtful debt, which has been taken again. So I just wanted to understand when we come at a point where we could see a sort of a decent amount of resolution? And a related question is, do you even think about taking a call on shutting down certain towers or sites, or that is not even something which is under consideration?

Prachur Sah — Managing Director and Chief Executive Officer

So, Sachin, if I may say, I think the question that you’ve asked is in a very pertinent question. I think the question on what actions we’ve take on operations, production and we take on collection is, it depends few other things. As Vikas mentioned, there was a payment plan agreed with that customer for the quarter ending December, which they met. And there was a higher plan that was to be met in January. So we are working very closely to monitor that situation. It’s depending on how those payment plan gets activated. We will take the appropriate actions.

Sachin Salgaonkar — BofA Securities — Analyst

Okay. Thank you.

Operator

Thank you very much, Mr. Salgaonkar. The next question comes from Mr. Kishore Iyer [Phonetic] from Cholamandalam MS, Chennai. Mr. Iyer, you may ask your question now.

Kishore Iyer — Cholamandalam MS — Analyst

Yeah, hi. Thanks. Most of my questions have been answered. Thanks. Hello? Hello?

Operator

The next question comes from Mr. Giriraj Daga from K M Visaria Family Trust, Mumbai. Mr. Daga, you may ask your question now.

Giriraj Daga — K M Visaria Family Trust — Analyst

Yeah. Hello sir. Again in the same point on the receivable side of it, just to get some broaden [Phonetic] side. As from my understanding, the receivables total outstanding, including the gross up will be closer to INR80 billion, INR85 billion. And the numbers look scary, because that is the last year PBT also, when I look at last year FY ’22 PBT that was INR85 billion. So the point is that, will we continue to make the new receivables which will look outstanding because asking the same question? How far we will continue to go? In terms of priority ranking we have understand, you have already given that in terms of unsecured receivables not been the priority list also. So is Board is aware about that? Sure, when we look at like this, it looks like the compromises are — we are compromising the share of the minority interest shareholder. So that way like what — well, is Board is taking any action? Or will we continue to make new receivables?

Vikas Poddar — Chief Financial Officer

So, Giriraj, I think we’ll be belaboring this point a bit. Clearly, the — first of all, the receivables figure that you are computing on a gross basis, I presume that is all customers. So yes, we have a receivables issue. And I can only assure you that we are not compromising. We are working in the best interest of the shareholders. There are various options and we are basically evaluating those options to ensure that we don’t do something which will have a long-term erosion. So the Board is fully involved, the senior management is fully involved. And rest assured that we will take the right action. Now, simply taking an operating action and as you are envisaging, reducing services or shutting down services, well, there are those options. But that may not be in the best interest. So we are evaluating and we will take the right action when the time comes.

Giriraj Daga — K M Visaria Family Trust — Analyst

Lastly, any kind of cut-off date?

Prachur Sah — Managing Director and Chief Executive Officer

To be honest, it all depends on how the payment plan pans out. I think this is — Vikas will keep you updated. I think it all depends on how the payment pans out and the visibility we get. So I think based on that, we’ll take the action.

Giriraj Daga — K M Visaria Family Trust — Analyst

Okay. Thank you.

Operator

Thank you very much, Mr. Daga. Due to time constraint, I would like to hand over the call proceedings to Mr. Prachur Sah for the final remarks.

Prachur Sah — Managing Director and Chief Executive Officer

I think despite the situation that we’ve all discussed just now, I think we remain confident on strong business fundamentals, both on the 5G side and the growth that we’re seeing on the towers. The 5G’s journey that the industry has embarked upon make this a very exciting phase as I outlined in the beginning of my commentary. We believe there are strong catalyst in the telecom space that will help industry continue to be on the growth trajectory. And I thank you all for joining the call. Have a good day. Thanks.

Operator

[Operator Closing Remarks]