Indus Towers Limited (INDUSTOWER) Q4 FY23 Earnings Concall Transcript

Indus Towers Limited (NSE:INDUSTOWER) Q4 FY23 Earnings Concall dated Apr. 27, 2023.

Corporate Participants:

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Vikas Poddar — Chief Financial Officer

Tejinder S. Kalra — Chief Operating Officer

Analysts:

Sanjesh Jain — ICICI Securities Limited, Research Division — Analyst

Kunal Vora — BNP Paribas, Research Division — Analyst

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

Arun Prasad — Aventis Parks Chennai — Analyst

Nikhil Deshpande — Axis Bank, Mumba — Analyst

Vivekanand Subbaraman — AMBIT Capital Private Limited, Research Division — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen, I am Vanna, the moderator for this conference. Welcome to the Indus Towers Limited Fourth Quarter and Year Ended March 31st 2023 Earnings Call. [Operator Instructions] Present with us on the call today is the senior leadership team of Indus Towers, Mr. Prachur Sah, 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 to the that must be viewed in conjunction with the. I now hand over the call to our first speaker of the day, Mr. Prachur Sah.

Thank you, and over to you, Mr. Sah.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Thank you, Vanna, and a very warm welcome to all participants on the call. I’m pleased to present our business performance for the quarter and the year ended March 31, 2023. Joining me today are my colleagues, Vikas Poddar, CFO; Mr. Tejinder Kalra, COO; Dheeraj Agarwal, Head, Investor Relations.

In my first full quarter at Indus, I’m delighted to see the 5G and the new tower rollout occurring in full swing, which bodes well for the telecom space as a whole and is in line with the government’s drive towards digitalization. Before I begin our agenda today, I would like to reiterate Indus Towers’ commitment towards enabling pan India connectivity, including some of the most challenging and remote locations.

Our team of brave hearts installed four mobile towers in Gurez Valley in Jammu Kashmir, which is located at an altitude of 8,460 feet. Working in the extremely harsh weather conditions in the month of November and December, the team managed to enable connectivity across 15 villages in the Valley. This demonstrates excellence in customer focus as a part of our day-to-day execution activities.

The commitment of employees reflects in the accolades we continue to win for being employer of the choice. For the 10th consecutive year, we have won the Gallup Exceptional Workplace Award and this is among the four global companies this year to have won this award for 10 years or more. Now coming to the key themes, I would like to talk about today with regards to the industry, the government remains committed towards facilitating rapid deployment of telecom infrastructure across the country and is repeatedly taking steps to that end.

A couple of quarters back the ROW rules were amended, allowing licensees to deploy telecom infrastructure over a private property without requiring approval from the concerned government authority. Licensees are only required to intimate the local authorities. In the quarter gone by, many states have proceeded to notify this ROW policy, which is an encouraging development. As more and more states follow suit in the future, the deployment of telecom infrastructure is bound to become easier and faster, which is crucial for the swift 5G rollout. Talking about the 5G rollout.

The deployment of 5G infrastructure and rollout of 5G services have been progressing rapidly. The top two operators have launched 5G services in more than 500 cities and are planning to complete the urban coverage in India over the next three to six months. More than 140,000 5G-based transceiver stations of BTS has been deployed across the country, with the average weekly run rate increasing from 5,000 BTS in December to 7,000 in March. At Indus Towers, we remain steadfast in our commitment towards facilitating the rollouts by the operators. We are making necessary investments in our network to support installation of 5G equipment on our existing sites. As indicated in our previous earnings call, the loading of 5G equipment has now started to add to our revenues and it should increase further. We expect the 5G opportunity to continue to build in the form of requirement of additional sites as the penetration of 5G services increases and capacity arises. Given our leadership position and expertise in providing such infrastructure, we plan to capitalize on the growing 5G opportunities.

The 5G adoption story continues to play out well globally as per statistics mentioned in the recent Mobility Report. The pace of 5G substitution accelerated after addition of 136 million subscribers during the quarter of December 2022 compared to 110 million subscribers in the September quarter. This helped the global 5G subscriptions to cross the one billion mark, which are expected to reach five billion by the end of 2028 as per the same report. The number of commercial 5G service providers also increased from 228 in September 2022 to 235 in December 2022. The adoption of 5G services is much faster than 4G as 5G reached one billion subscriptions two years sooner than 4G. With respect to India, 5G subscriptions are expected to reach the 500 million mark by 2027 with a penetration of about 40% as per the report.

The steady trend of increasing 5G adoption and upgrade from 2G to 4G stand to support the strong data consumption story playing out in the country. The total data consumed across the top three operators, combined grew by 17% year-on-year in the December quarter. The average data consumed per user per month across the top three operators stood at almost 21 GB for the quarter ended December 2022, registering a year-on-year growth of 17%. This growth is underpinned by the continued migration from 2G to 4G, given 31 million 4G data users were added/upgraded in 2022. As for Nokia, India MBiT Index of 2023, data consumption per user per month is expected to grow to 46 GB by 2027.

The healthy consumption supplemented by the rapid uptake for 5G is expected to lead to increased demand for passive telecom infrastructure, and we remain well equipped to cater to this demand. Now coming to our operational performance. I’m happy to report that we had a solid quarter, where in our tower addition, including leaner towers was one of the highest in our history. During the quarter, we had net additions of 3,482 micro towers and 3,396 corresponding colocations. A reduction in collocation churn both sequentially and year-on-year also helped the net additions. Our total towers and colocations at the end of quarter 4 were at 192,874 and 342,831 respectively, growing by 4% and 2.1% on a year-on-year basis. Our tenancy ratio dipped marginally from 1.79 to 1.78, but continues to be industry-leading. Our leaner tower additions were at 1,241 in quarter four compared to 1,408 colocations in quarter three. Including leaner towers, our net colocation additions stood at 4,637 in quarter four compared to 2,715 in quarter three. Over the past few quarters, we have revised our internal processes, we’ll be focused on improving the time to market for our products, which has been one of our major arms from the customers.

The simplification of these processes, coupled with aggressive rollouts for the customer has helped us deliver the substantial number of additions. Given our major customer has increased its focus on rural expansion, which is generating a good demand, especially for our macro towers, we expect the demand to remain healthy. I would also like to briefly touch upon the collection from one of our major customers. We are pleased to see progress on that front. Our collections from these customer have improved during the quarter and were close to the invoicing amount.

We are constantly engaging with the customer to also clear the past outstanding. Government’s decision to convert the interest use of the same customer into equity is also a positive step and is expected to help ease the financial burden of the customer. We are closely monitoring development on the customers’ fundraise plan. Now moving on to ESG, which is a strategic priority for the organization. We have identified key focus areas within the environment, social and governance dimensions and made medium- to long-term commitments to work towards them. Given the scale and large energy footprint of our business, GHG emissions is one of the major focus areas for us, and we have committed to net zero GHG emissions by 2050, in line with science-based target initiatives.

We are driving multiple energy interventions with a focus on reduction in diesel consumption and expansion of renewable energy portfolio. We are constantly reducing our diesel consumption through operational efficiencies and enhancing our storage solutions. Diesel consumption decreased by about 6% year-on-year in FY 2023 despite increasing number of sites and 5G loading. Our efforts are also yielding results through quarter-on-quarter increase in non-DG sites. We are working on building solar site and also exploring these newer technologies. We have recently signed an MOU to run a pilot for aluminum air technology for generation of. Responsible handling and packing of waste is other key area, which we have identified.

We are working towards 100% recycling of our hazardous waste, mainly lead and lube oil to driving a structural change in our value chain. Having a diverse workforce and ensuring the highest safety standards are also something we’ve started towards. We aspire to increase the gender diversity five times from the current levels of about 6%. A series of initiatives are being planned to improve the diversity at both field and management divisions. With respect to ensuring safety of people, especially in the field, we are using innovative ways to bring awareness and ensure compliance. It has helped us reduce our field incidence.

As we continue to intensify our actions on ESG, we are also enhancing our disclosures and reporting and increased disclosure of our financial — of our nonfinancial performance in our last year annual report and participation in ESG rating providers survey have resulted in improvement in our MSCI rating and S&P Global Sustainability score. We are quite hopeful of our all-around efforts using desired results in our ESG journey, and we’ll keep reporting on the same. I would now request Vikas to take you through our financial performance for the quarter and year ended March 31, 2023, and I look forward to your questions.

Over to you, Vikas. Thank you.

Vikas Poddar — Chief Financial Officer

Thank you, Prachur.

I’m pleased to share with all of you the financial results of the fourth quarter and year ended 31st March 2023 for Indus Towers. Before I take you through the financial performance, I would like to reiterate our robust operational performance wherein we saw a significant uptick in our tower and colocation additions. So as you heard, we added 3,482 macro towers and 3,396 corresponding colocations in quarter four. We closed the year at a total tower and colocation count of 1,92,874 and 3,42,831, respectively, each growing at 4% and 2.1% on a year-on-year basis and 1.8% and 1% on a quarter-on-quarter basis.

Addition in our leaner tower portfolio remains strong at 1,241 colocations in quarter four, taking our colocation base for leaner tower to 6,924. Next, I would like to take you through the financial performance for the fourth quarter. But before that, let me remind you that in the previous quarter, there was a one-off provision impact of INR5.5 billion from deferred revenue recognition in quarter four FY 2022 and a negative impact of INR22.7 billion from provision for doubtful debt in quarter three of FY 2023. Hence, the quarter four FY 2023 performance should be viewed accordingly. Our reported gross revenue fell by 5.1% year-on-year to INR67.5 billion, of which the core revenue from rental was down by 10.4% year-on-year to INR42.5 billion.

Adjusted for the one-off, our gross revenue and core revenue grew by 2.8% and 2.4%, respectively, year-on-year. Please note that the revenue for quarter four FY 2023 had an impact of nonrecognition of INR0.8 billion pertaining to revenue equalization assets for one of our major customers. On a quarter-on-quarter basis, our reported gross revenue was down by 0.2% and core revenue from rentals was up by 1.8%, respectively. The growth in our core revenue from rental is reflective of the healthy tower and tenancy additions and the loading of 5G equipment. Adjusted gross and core revenue grew by 0.1% and 2.2%, respectively. Reported EBITDA was down 15.3% year-on-year and up 190.6% quarter-on-quarter to INR34.5 billion. EBITDA margin was down 6.2 percentage points year-on-year and up 33.5 percentage points quarter-on-quarter to 51%. Adjusted for the aforesaid factors, EBITDA declined by 1.8% year-on-year and was up 0.7% quarter-on-quarter. EBITDA had an impact of increase in reported energy losses. Energy margins were lower at minus 2.2% in quarter four FY 2023 due to the impact of certain year-end adjustments in energy billing.

On a full year basis and adjusted for one-off energy margin was minus 1.8% for the year. There is constant focus on improving this based on the initiatives Prachur mentioned in his speech earlier. Our reported profit after tax was at INR14 billion compared to the loss of INR7.1 billion in quarter three FY 2023 and was down 23.5% on a year-on-year basis. Adjusted for the opposite factors of one-offs, profit after tax was down 0.8% on a year-on-year basis and up 4.7% on a quarter-on-quarter basis. I’ll now move to the performance for full year FY 2023. Our gross revenues grew 2.4% year-on-year to INR283.8 billion, and core revenue was down 1% year-on-year to INR174.3 billion. Adjusted for one-off gross revenue and core revenue were up 2.1% and 2% year-on-year, respectively.

On a reported basis, EBITDA declined by 34.6% to INR97.7 billion, and profit after tax was down 68% to INR20.4 billion. Again, adjusted for one-offs and provisions, EBITDA and profit after tax were up by 0.5% and down 0.6% year-on-year, respectively. Free cash flow for the year was INR14 billion, which was impacted by the shortfall in collection during the year from a major customer. In the fourth quarter, our collections from the customers saw an improvement, thereby resulting in a muted impact of provisions for doubtful debts on quarter four financials. We had adopted and continue to follow a stringent ECL computation and accordingly carry a provision for doubtful debts of INR54.5 billion relating to the said customer to derisk our balance sheet.

We continue to be in active discussions with the customer to improve the collections further to address the past outstanding and are committed to protect the interest of the shareholders. Our reported pretax return on capital employed and post-tax return on equity for the past 12 months were at 11% and 9.4%, respectively. The return ratios have been impacted by the provision for doubtful debts and impairment of revenue equalization assets during the year. In summary, we are pleased with the operational performance we delivered during the quarter, and it’s a testament to our strength and as a leading player in the towerco space.

Our financial performance reflects both our strong operating numbers and improved collection. Our customers’ focus on expanding its coverage in rural market and the ongoing fast paced 5G rollout make us optimistic about the demand outlook in the near to medium term.

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

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Mr. Sanjesh from ICICI Securities, Mumbai.

Sanjesh Jain — ICICI Securities Limited, Research Division — Analyst

First on the 5G rollout and the loading revenue. Can you give us some direction, what is the loading revenue as a percentage of rental you get on the 5G? And how much can it really drive in terms of ARPC growth over the next few years because this is where we should be banking more for our growth over next three years — next two to three years? And considering that the weight of the equipment from the 5G has now significantly come down from 40 kilos to now at 18-odd kilos. The opportunity from the loading represents a right assessment.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

So thanks for the question, Sanjesh. I’ll take the first question, and then I will let maybe Tejinder take the second part of the question. So in terms of the loading revenue, I think we shared earlier that the 5G loading revenue drives roughly anywhere between 5% to 10% growth in the ARPC depending on which towers we are rolling out and who is rolling out because in case of 5G rollout in the two bands, the loading is a bit higher than rolling out 5G on a single band. So anywhere between 5% to 10% is the sort of the growth that we see because of the 5G loading.

Tejinder S. Kalra — Chief Operating Officer

And Sanjesh, just to answer your question on the second portion that, yes, the weight of the radios on the towers in case of 5G has come down, yes, 18 to 20 kilos depending upon which is the vendor for the equipment. So from a tower loading perspective, we are fairly covered. I don’t think we’ll have any issue in terms of accommodating our customers’ 5G equipment on our sites. This actually helps us in terms of any additional loading also that may come up. So we’re quite secured from that perspective.

Sanjesh Jain — ICICI Securities Limited, Research Division — Analyst

The second question is on the 5G rollout. India is a bright spot probably there. But apart from India, as we look at for at the same time Nokia earnings forecast it doesn’t look like that the world is really sharing this 5G rollout at such an accelerated pace. Do we see any risk of India also probably, say, six to eight months down the line significantly slow down the 5G capex similar to what we have seen in the other part of the world. I understand it’s a 5-year 8-year opportunity that there is a significant return to the carrier and 5G is very important.

I’m talking from more near term like a year or 2, can we see a more gradual rollout on prices than the accelerated pace we are seeing? And just one clarification there. In the opening remarks, we talked about 5,000 sites going to 7,000 sites in terms of tower. This we are talking about the number of towers, right, on this 5G so that’s clarification.

Tejinder S. Kalra — Chief Operating Officer

I think that’s more a BTS number overall as you talked about the 5,000 to 7,000 this year. It’s a BTS number, right?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

That’s a BTS we have rolled out. So weekly run rate.

Tejinder S. Kalra — Chief Operating Officer

So the weekly rate from 5,000 BTS in December to 7,000 in March that’s the weekly run rate that we saw in March 7,000 in March.

Sanjesh Jain — ICICI Securities Limited, Research Division — Analyst

This is weekly run rate.

Tejinder S. Kalra — Chief Operating Officer

Yes, yes.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

The operators are significantly scaling up the 5G rollout. Just to give you a sense on — while you raised the concern on this — the data offtake happening and with 5G giving a much higher data capacities I think the rate at which data consumption is growing in India and globally. We don’t see, at least this is our expectations. I’m sure the operators can answer this better. We don’t see the rollout slowing down at any given point in time.

I mean if you look at the Ericsson Nokia projections as well from 21 GB per subscriber per month consumption, they are projecting to — this to go up to about 47 GB, which essentially means more than doubling in the next two to three years’ timeframe. And given that 5G, actually, the cost per MB of data in 5G is significantly lower compared to a 4G or other technologies. I think the operators will have all the incentive to roll out four and 5G more if they have to feed that kind of data demand. So we don’t see that risk for now at the moment, at least neither in the next couple of years.

Operator

The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai.

Kunal Vora — BNP Paribas, Research Division — Analyst

My first question is on the progress for collecting the current dues from Vodafone Idea. How are you thinking about the past dues now? Do you think it makes sense to continue the service till the time they keep clearing the current dues? Or do you think collection of past dues is a must in the coming quarter or so?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Kunal, I think — if you look at what has happened in the quarter, right, there have been some positive developments and the government decided to convert the interest into equity, that’s a positive development. Given the fact that we made collections, I think we are closely watching the situation and engaging with the customer to make sure first that their debts don’t increase, and we can expedite the collection of past receivables.

So I think while there has been some positive developments, I think we will have to monitor the situation. I can’t tell you exactly when this is going to happen, but we believe these positive developments does reinforce that there is a possibility that this may happen and we have been making sure that we do the collections as possible for us, right? So as of now, that’s the plan I can share with you.

Kunal Vora — BNP Paribas, Research Division — Analyst

So for now, fair to assume that as long as the current dues are getting collected, that’s fine. I mean like while you will keep pushing the customers. But for now, if current dues are — keep getting collected you are okay.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Yes, sure.

Vikas Poddar — Chief Financial Officer

Yes.

Kunal Vora — BNP Paribas, Research Division — Analyst

Second is, you saw strong tower additions in fourth quarter. What would be the ROI you will be making in these towers, assuming they remain single tenant. And is the capex and rental on these towers similar to the older towers or there is any difference in the terms?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Let me answer the second part first, and then I’ll ask Vikas to comment on the ROI. See, over the period of time, I think there has been considerable improvement in the capex per tower, right? So I think what used to be the capex per tower by 10 years ago compared to what it is now, it’s a much lower capex. So from a capex profile, it has changed. Vikas you want to add something more on this?

Vikas Poddar — Chief Financial Officer

Yes. So Kunal, on the — on your ROI question, I think, first of all, there are obviously a lot of variants of towers that we do. And each variant has a different investment profile and different return profile and so on. But at a broad level, if I were to sort of give you a sense, I would say a single tenancy, first of all, the return profile is not negative. It’s a positive return that we generate. And depending on whether it is a GBT or an eco site, these are different variants. It could range between, let’s say, a single, high single digit to a low double digit sort of thing at single-tenancy profile, but it’s all positives.

Kunal Vora — BNP Paribas, Research Division — Analyst

But single digit will be below the cost of capital. So it should be double digits, right, to cover the cost of capital?

Vikas Poddar — Chief Financial Officer

Yes. So usually, these are very long-term assets. And over the life of the asset, we obviously see loading coming in, and we also see the tenancy buildup and so on. So obviously, the return profile is never constant. So as the loading increases and as the usage increases, the return profile also improves over the life of the asset.

Kunal Vora — BNP Paribas, Research Division — Analyst

And just one last question. Your thoughts on dividends going forward?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Vikas?

Vikas Poddar — Chief Financial Officer

So well, on the dividends, as you can see, we have not announced. So obviously, as per our policy, the dividend continues to be linked to the free cash flow. During the year, we have generated INR14 billion of free cash flow, as you would have seen in the results. However, we — in this vision, we are also sort of supposed to consider the working capital requirement of the company. We are tracking the development on the receivables and working capital very closely. So we’ll continue to review the situation time to time and take a decision on the dividend distribution in the coming period as we progress. But as of now, I think we basically need to watch a few more quarters and be comfortable on the cash flow.

Kunal Vora — BNP Paribas, Research Division — Analyst

But why not distribute the free cash flow which you did generate this year?

Vikas Poddar — Chief Financial Officer

So like I said, I mean, somewhere there is in the working capital evaluation, a bit of a stress that we see. And we need to really see the free cash flow generation for some more quarters to be able to sort of be comfortable with the working capital situation. So most of the working capital for the year was generated towards the second half. We were struggling in the first half because of the receivable situations and lower collections and so on. So I think one or two quarters probably is a very short time frame. We really need to be confident for some more quarters.

Operator

The next question comes from Mr. Mitul Shah from Reliance Securities, Mumbai.

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

First clarification on collection from VI, that can we simply assume that during Jan, Feb, March, this current quarter, we collected a sizable or nearly say 90% to 100% of the current collection?

Vikas Poddar — Chief Financial Officer

So Mitul, I think, certainly, we have seen improvement versus what we were collecting in the past. And yes, I think pretty much, we are in the range of 90% to 100% collection in this quarter. So yes, I mean, it’s been a good quarter for us as far as collection is concerned.

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

Just want to then I mean confirm that this INR4,900 crores kind of a receivable. So again, major portion will be from this client, and this pertains to entirely historical period, right?

Vikas Poddar — Chief Financial Officer

No. So receivables, of course, we have more than one customer. So the receivables represent the outstanding that we have from all our customers. Unfortunately, we cannot disclose specific numbers for our customers.

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

My point is that in the past, when situation were normal, roughly, we used to have INR300 crores to INR500 crores kind of a receivable at the end of the year. Now it has reached to INR4,900 crores. So that means nearly 85% to 90% receivable seems to be from this major customer or maybe near about those range. So that pertains to past periods, that’s what I want to just confirm.

Vikas Poddar — Chief Financial Officer

Well, there is certainly past period receivables sitting in this number, but I don’t think we have ever had INR300 crores of receivables. I mean, usually, we have a certain credit period with our customers, and our receivables are sort of representing those outstandings, net of provisions. So we have basically the back end provisions of almost INR54 billion, which is netted off in that number.

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

Sir, last question on this leaner tower related revenue. Is it because of that we are not factoring that into the number of towers. Our revenue per tower is slightly increased on a quarter on quarter basis.

Vikas Poddar — Chief Financial Officer

Sorry, could you repeat that question, Mitul?

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

In our reporting number of towers, we are not calculating leaner tower right, all these are macro towers.

Vikas Poddar — Chief Financial Officer

Yes, that’s right.

Mitul M. Shah — Reliance Securities Limited, Research Division — Analyst

And our revenues are increasing from the leaner tower also. So is that a key reason, one of the reason, major reason for the quarter on quarter improvement in revenue per tower?

Vikas Poddar — Chief Financial Officer

No. Well, when it comes to the revenue per tower metric, they are representing the macro segment only. So while we are rolling out leaner towers, but the number of leaner towers as well as the revenue from those towers are not very material at the moment to be reported as a separate segment. So the KPI represents the revenue per tower for macro segment only. [Operator Instructions] The next question comes from Mr. Arun Prasad from Aventis Parks Chennai.

Arun Prasad — Aventis Parks Chennai — Analyst

So apologies if the question is repeated in. I joined late. This capex per tower in this year seems to be at least 25% higher than the previous year. Any specific reason for this, sir?

Vikas Poddar — Chief Financial Officer

I mean… No, Arun. We — I mean, there is — in fact, from last year, in terms of the metal prices and all, we have seen softening. So I don’t know really which number you are picking up and where you have picked this up from

Arun Prasad — Aventis Parks Chennai — Analyst

So I am taking the total capex and then removing the maintenance capex. So on the remaining growth capex, I’m just dividing it by the number of additional towers. So I did the number around close to INR4.5 million in this year as compared to around INR3.5 million last year.

Vikas Poddar — Chief Financial Officer

So you need to bear in mind.

Arun Prasad — Aventis Parks Chennai — Analyst

The numbers were directionally, it looks like higher.

Vikas Poddar — Chief Financial Officer

No, you need to bear in mind that it’s not a homogenous tower that we roll out. I mean we have many variants in our towers. So there is always a mix effect of whether we are doing rooftop or ground-based or macro or lean or so on. So depending on the mix, the averages could vary.

Arun Prasad — Aventis Parks Chennai — Analyst

I think — unless and until we going, doing some expensive GBM–based as or GBT towers this 25% increase on a decreasing inflationary — deflationary scenario seems to be very great.

Tejinder S. Kalra — Chief Operating Officer

Arun, I think some of this capex is also related to the upgrade capex that is being special. I don’t know how you’ve calculated it, but this must be including the 5G rollouts and the upgrade expenses. So I don’t think it’s purely a tower or tower. What we can confidently say is that the tower cost on tower is not increasing. In fact, we are seeing an improvement in the per cost capex.

So I think the number needs to be looked in a holistic point of view in terms of how many 5G rollouts have been done, how many sharings have been added and how many new sites have been added. So I think there is a mix play here, which may be giving you an impression like that. Because last year, there was a 5G rollout. This year, there was a significant 5G rollout. So that might be sitting in the capex as well that you are probably not factoring in.

Arun Prasad — Aventis Parks Chennai — Analyst

Okay. Because yes, because to answer to an earlier participant you said just 20, 25 kgs of additional loading from the 5G base stations. So I thought that before that that could be the reason. But anyway, I will take it offline. My second question is on the free cash flow generation, we are not able to pay dividend this year.

So I guess — is it — shouldn’t we be taking a pause in our growth capex so that you are comfortable in paying out to the shareholders, unless and until we get the compensated higher when you are rolling out for a single tenant. What is the urgency for doing capex at this stage, especially given the bleak outlook from the second tenant. So obviously, at this point of time, it looks like gaining market share of the tower business seems to be countered in quarter two. So shouldn’t — have you consider that option? And how — what is our thought process going forward on this?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

To be honest, I don’t — I mean, if I understood correctly, you’re saying is that why do the capex now? I think from my point of view, what I can say is, I mean, being an energy business, if you don’t make it now, you’ll probably never make it, right? So I think it’s an important year for growth, so we have to capture it.

And on the dividend part, Vikas already mentioned, I think we are currently evaluating the situation. I think in the coming quarters, we’ll be continuing to evaluate based on how the funding situation of our customer changes and we’ll keep bringing you design back. But I think from a capex point of view, we remain committed to the growth because this is something that is going to keep for a very long time. Vikas, if you add something.

Vikas Poddar — Chief Financial Officer

So I think that’s it. So certainly, I mean, it’s a growth opportunity that we have, and I don’t think we should really let the opportunity go because we are going to — with this growth in towers, we are going to generate cash flows for the next 10 years, which is very important. So yes, I hope that answers your question.

Arun Prasad — Aventis Parks Chennai — Analyst

No, to an extent I understand, but what I’m saying is — what I’m trying to understand is, as our MSA laws to charge incrementally over and above what it is so that you get compensated given that the current situation doesn’t allow you to monetize, the tower company, all the tower companies hope that eventually the second tenant will come. Given that the uncertainty is there, is there any premium that we are — we will be able to charge to the customer, especially now given that one of the large customer is also a shareholder. So there is obviously, there is a conflict of interest. So are there is very structure in place to manage these. These are all the top of the mind questions that I’m trying to understand.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

To be honest, I think you’re asking quite a few questions in one question, I’ll try to simplify. I think as we were answering the earlier part of the question, I think the overall profile of the — even the single-tenant tower has changed in terms of both what we are doing in the capex, in terms of return profile and what we’re loading, we expect all those towers in the coming years, right?

So even if the risk of a single tenant as the 5G rollouts happen on the loading occurs and with the base profile that we have, we believe it’s not the right time to miss this opportunity. And of course, if the other customer comes along, it further improves the margin, right? That’s what our approach is. And we are looking at many opportunities internally in terms of operational efficiency further, how we can improve our operating — reduce the operating costs and improve the overall profitability for the company.

Operator

The next question comes from Mr. Nikhil Deshpande Axis Bank, Mumbai.

Nikhil Deshpande — Axis Bank, Mumba — Analyst

My first question was on your energy margins in the opening remarks, you have mentioned that the energy margins are negative due to year-end adjustments. What is your outlook on energy margins for the FY 2024? And the other was — the second question was total energy, the cost, which is there, how much is the common energy cost? And how much is the operator specific energy cost?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

So let me answer the first the second part I actually didn’t understand the question I’ll ask you again. But on the outlook for FY 2024, as you heard Nikhil, there are certain initiatives that we are currently working on to improve our overall profile of the energy operation for the energy costs that we have to take. So our outlook is the energy margin in FY 2024 is going to look better than what it is in the year, right?

We have taken internal targets to make sure that, that improvement is seen. So I believe the outlook remains that the energy margins will improve in the right direction in FY 2024. The second question, which you asked, I probably didn’t understand is, I mean, most of our energy cost is on a tower and with an operator. So I didn’t understand what is the comments?

Tejinder S. Kalra — Chief Operating Officer

So Nikhil it was just to — I hope I have understood your question correctly. So typically, if you have an indoor site, the cost of running ACs on those sites, which is obviously a common cost between multiple or as many tenants that you have on the site, which is the only cost which is kind of common. Otherwise, the cost of energy is dependent upon the load that the operator is running for their particular equipment at our site and that consumption drives the energy cost for that operator.

Nikhil Deshpande — Axis Bank, Mumba — Analyst

So the common energy cost, which you said that what percentage it would be of the total cost of.

Tejinder S. Kalra — Chief Operating Officer

It depends upon the profile of the site. If it is an indoor site, typically 15%, 20%, 25%, but it is also getting paid by the operator. Obviously, that common cost is being billed to the customer as well because it is required to run their equipment

Operator

The next question comes from Mr. Vivekanand S., from AMBIT Private Limited, Mumbai.

Vivekanand Subbaraman — AMBIT Capital Private Limited, Research Division — Analyst

Could you give us an update on potential consolidation that could happen in the tower space. There are media reports that one of your competitors is perhaps looking to exit, and there is obviously a distress and misery caused by this weak operator all across the sector.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Vivek, it’s — for us, it’s very difficult to speculate or comment on the media reports or say as such. And I think we’ll keep looking at what happens right. But I remain — our objective still remains to be the market leader and get the market share whatever comes out in [Indecipherable] so that’s our focus remains. And for the media report that you are mentioning, let’s see because we don’t have any — to be honest, any view on that right now.

Vivekanand Subbaraman — AMBIT Capital Private Limited, Research Division — Analyst

Sure. And as far as the update, I missed a little bit of the initial part of the commentary. So I just want to understand from the perspective of, say, these new modular structures that are being built, right, lean sites and small cells. Are there consolidation opportunities outside of macro towers also for market leaders and large players like ourselves. And if you could comment on how you could scale up these potential adjacent revenue opportunities.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

I think if you’re talking about the scale-up of deploying more leaner sites, I think for sure, I think that’s something that we are driving, and you will see more and more coming in the next few quarters.

Tejinder S. Kalra — Chief Operating Officer

Vivekanand, I think, I need to understand. If you can elaborate the first part of your question a little bit. I think it is a little unclear as to what you are expecting there.

Vivekanand Subbaraman — AMBIT Capital Private Limited, Research Division — Analyst

My understanding is that macro towers, there are only a handful of us that are in that business, but perhaps in the case of small cells or lean towers, perhaps there are more number of players perhaps smaller players also in the market. Is it possible for you to scale up these businesses more aggressively through M&A? Or is this something that you will just look to build organically?

Tejinder S. Kalra — Chief Operating Officer

So all kinds of opportunities, of course. We are, first of all, at our end, constantly upscaling the numbers that we roll out every quarter. Of course, we don’t do proactive build of the sites. We always are building sites depending upon the operator demand. So if there is any variation one sees in a quarter, it is purely because of the demand driven from the customer side. But if one were to say, can we scale up inorganically? All opportunities we keep on exploring and depending upon the evaluation outcome, we will take the decisions as appropriate

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Vivek in general, we are quite cost competitive in that space as well. So unless there is a compelling reason, I think I strongly believe that we should be able to scale up and compete well in that space, given our efficiency. And second thing is what we offer the customer is beyond the construction of the tower. Our O&M and our uptime is industry-leading.

So what the value we offer is not just in the construction of it, it is the post construction and delivering better uptime to our customers. So I think we remain confident that we have a very strong portfolio in terms of both delivering the towers and then actually doing the O&M of it. So unless there is a compelling reason to do that. I think our first focus remains to get the market share ourselves.

Vivekanand Subbaraman — AMBIT Capital Private Limited, Research Division — Analyst

Last question is have you and Vodafone Idea agreed upon a payment plan for fiscal 2024? Has this been — if this has been discussed in the call before then, please avoid answering I’ll look up the transcript.

Vikas Poddar — Chief Financial Officer

Well, there was a payment plan that was agreed, which we shared almost two quarters back. So while there are some challenges in meeting that payment plan, but we are still working with the customer to sort of sort those issues out and basically follow on the payment plan. So there’s no fresh payment plan that we have agreed for FY 2024. So pretty much, we are working on the same plan.

Operator

[Operator Instructions] We do have a follow-up question from Mr. Kunal Vora from BNP Paribas, Mumbai.

Kunal Vora — BNP Paribas, Research Division — Analyst

So my question was on the minimum lease rental receivables. You’ve seen a sharp spike this quarter. Was there some extension of contract because clearly, the new tower additions cannot explain that?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Yes, Kunal, so basically, the renewals that we signed back in the early part of this year are not really lump sum. There are renewals which happen every quarter. So for all the towers that came up for renewal in quarter four, obviously, that has impacted the average lease period and the minimum lease commitment.

Kunal Vora — BNP Paribas, Research Division — Analyst

And does this renewal have any impact on average rental per tower?

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Well, the impact is same as what we had shared earlier. So there’s no fresh — it’s the same framework that gets applied to all the renewals that happen every month and every quarter. So there’s no fresh impact to talk about.

Operator

[Operator Instructions] At this moment, there are no further questions from participants. I would now hand over the call proceedings to Mr. Sah for the final remarks.

Prachur Sah — Chief Executive Officer, Managing Director & Additional Director

Thanks, Vanna. Thanks again for all your questions. To sum up our strong operational performance during the quarter is indicative of our strength, the rural expansion by a major customer and rapid pace of 5G rollouts are extremely encouraging. There are many levers of growth in the industry, which we are confident of capitalizing upon, and we’ll be treating this part of the growth in a sustainable and inclusive manner. Thank you all for joining the call, and have a good day.

Operator

[Operator Closing Remarks]