Board's Report
Dear Member
Your Company’s Directors are delighted to present their Ninth Report together with the Audited Financial Statements of Summit Digitel Infrastructure Private Limited [formerly known as Reliance Jio Infratel Private Limited] (“Company/Summit/SDIPL”) for the financial year ended March 31, 2022 (“year under review/FY2021-22”).
Economic Overview
Global Economy
Even amidst decelerated global growth, 2021 was a year in which we saw mobile network technology advancements taking centre stage across the globe.
As the world enters the third year of the COVID-19 crisis, economic developments have been both encouraging and troubling, marred by risk and uncertainty. The good news is that output in many countries rebounded in 2021, after a sharp decline in 2020. Both advanced and middle-income economies have attained substantial vaccination rates. International trade has picked up and high commodity prices are benefiting many developing countries. Domestic financial crisis and foreign debt restructurings have been less frequent than what was expected in a time of severe global shocks.
Risks to the global baseline are tilted to the downside. The emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruptions. Moreover, supply chain disruptions, energy price volatility and localised wage pressures mean uncertainty around inflation and policy paths is high.
The war in Ukraine comes at a time when some countries are moving past the acute phase of the pandemic and the global economy is just recovering. As central banks fight persistent and widespread inflation and rising debt vulnerabilities, multilateral efforts to respond to the humanitarian crisis and end of the pandemic remain essential.
Indian Economy
A positive business environment, robust industrial output and rapid vaccination coverage have provided a strong momentum for the growth of India’s economy.
Between October and December 2021 (Q3 FY2021–22), Gross Domestic Product (“GDP”) grew by ~5.4%, slower than the estimated. Growth in the July–September quarter was revised up to ~8.4%, which explains the fading recovery in the subsequent quarter. The uneven (modest, at best) recovery in few sectors, especially agricultural, manufacturing and contact-intensive services sectors, weighed on the overall growth.
GDP growth is projected to range between 7.5% and 8.0% in FY2022–23.**
There was a visible g rowth in credit uptake in FY2021-22, with agricultural and industrial sectors and personal loans driving the uptick. Banks and Non-Banking Financial Companies (“NBFCs”) have healthier balance sheets and provisions compared to the levels seen in 2018.
The successful macroeconomic management of the COVID-19 pandemic has resulted in a strong recovery of India’s economy because of which the country is in a better position to face the economic fallout of the current Ukrainian crisis.
The telecom industry globally is a critical economic multiplier that cuts across all industries and is the base of all new-age communications and connectivity. The Indian telecom sector is, by far, the world’s second-largest telecommunications market. The rating agency, ICRA Limited, has revised the telecom sector outlook from ‘negative’ to ‘stable’ as recent prepaid tariff hikes taken by the big 3 operators - on the back of the reforms package – are likely to boost industry Average Revenue Per User (ARPU) levels and also shore up telco profits. Improving investment outlook with private investment, particularly manufacturing, benefiting from the Production-Linked Incentive (PLI) scheme, and increases in infrastructure investment. In the Union Budget of 2022, the Government has recognised the telecom sector as an enabler of growth and employment opportunities with emphasis on nationwide 5G rollout and access of affordable services to rural and remote areas.
Change of Registered Office of the Company and Amendment in Memorandum of the Company
During the year under review, pursuant to the approval granted by the Board of Directors of the Company in the meeting held on September 21, 2021 and shareholders at their Extra-Ordinary General Meeting held on September 22, 2021 and pursuant to the order passed by the Regional Director, Ahmedabad, approving the shifting of registered office of the Company from the ‘State of Gujarat’ to the ‘State of Maharashtra’, the registered office of SDIPL was shifted from 511, Shapath-V, Near Karnavati Club, S G Highway, Ahmedabad-380015, Gujarat to Unit 2, 9th Floor, Tower 4, Equinox Business Park, L.B.S. Marg, Kurla (W), Mumbai-400070, Maharashtra w.e.f. January 25, 2022. Accordingly, the Memorandum of Association of the Company was amended to note the change in the Registered Office.
Business and Operations of the Company
Your Company is engaged in the business of providing passive tower infrastructure and related operations and maintenance services. Summit has a nation-wide presence in all states of India. As on March 31, 2022,SDIPL operated with 1,51,594 towers.
Our main costs typically includes ground rent (which is fixed under long term contract with annual escalation) and power and fuel, all of which may be passed through to our tenants, as well as property taxes and repair and maintenance expenses. Our cell sites have generated consistent growth over last year due to the following attributes:
- Able to provide excellent operational uptime in network,
- Consistent demand to provide nationwide 4G coverage,
- Young and highly fiberised tower portfolio,
- Lowest opex, and
- High Ground Base Tower (“GBT”) share of towers facilitates multi-tenancies.
SDIPL’s strategic tower footprints and superior backhaul connectivity have been areas of excellence and one of the key USPs. In February 2022, the Company signed a Master Services Agreement (“MSA”) to commence business with Airtel, one of the largest MNOs in the country. In addition to this, SDIPL is also exploring the opportunity to collaborate with other MNOs and various other internet service providers to open the doors for leasing on our extensive existing asset base.
The Indian telecom sector is, by far, the world’s
Second-Largesttelecommunications market.
As of March 31, 2022 SDIPL operated with
1,51,594 towers.Executive Overview
Our primary business is the leasing of space on telecom sites to wireless services providers and data providers.
The outbreak of COVID-19 pandemic globally and in India is causing significant disturbance and slowdown of economic activity. Your Company is engaged in the business of providing tower infrastructure and related operations in India. SDIPL has executed a long-term MSA with Reliance Jio Infocomm Limited (“RJIL”)(one of the largest telecommunication service provider in India) as its customer, which results into committed revenues and cash flows for SDIPL on a long-term basis. Moreover, the COVID-19 pandemic has not had a material adverse impact on the operations of the telecommunication industry, to which SDIPL currently caters to. Also, SDIPL has completed substantial portion of its planned capital expenditure and for the balance as well as for the operations and maintenance of the tower sites, SDIPL has in place long-term arrangements with experienced contractors/service providers.
Further, your Company has adequate unutilised borrowing limits available to meet the balance capital expenditure requirements to reach targeted portfolio of 1,74,451 towers. In view of the above, SDIPL does not expect any significant challenges ongoing concern, including emanating out of COVID-19, in the next 12 months.
We expect existing and potential new tenant demand for our telecom infrastructure will result from:
- New technologies, including 5G,
- Increased usage of mobile entertainment, mobile internet, and machine-to-machine applications,
- Adoption of other emerging and embedded wireless devices,
- Increase in smartphone penetration,
- Wireless carrier focus on expanding both network quality and capacity, including the use of towers and small cells,
- Adoption of other bandwidth-intensive applications (such as cloud services and video communications),
- Availability of additional spectrum, and
- Increased Government initiatives to support connectivity throughout India.
Based on industry research and projections, we expect that a number of key industry trends will result in incremental revenue opportunities for us:
- The deployment of advanced mobile technology, such as 4G and 5G, will provide higher speed data services and further enable fixed broadband. As a result, we expect that our tenants will continue deploying additional equipment across their existing networks,
- Wireless service providers compete based on the quality of their networks, which is driven by capacity and coverage. To maintain or improve their network performance as overall network usage increases, our tenants continue to deploy additional equipment across their existing sites while also adding new cell sites. We anticipate increasing network expansion over the next several years, as existing network density is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage,
- Next generation technologies requiring wireless connectivity have the potential to provide incremental revenue opportunities for us. These technologies may include edge computing functionality, autonomous vehicle networks and a number of other internet-of-things, applications, as well as other potential use cases for wireless services. These technologies may create new and complementary use cases for our sites over time, although these use cases are currently in emerging stages,
- Wireless service providers continue to acquire additional spectrum, and as a result are expected to add additional sites and equipment to their networks as they seek to optimise their network configuration and utilise additional spectrum.
We believe these trends will result in incremental utilisation and interconnection demand at our infrastructure facilities.
The following table details the number of telecom sites that we owned and operated as on March 31, 2022:
Information Pertaining to the Sector or Sub-sector
1.) Industry Overview:
Today, with data growth and the imminent launch of next gen 5G technology taking centre stage, the next decade holds exciting new prospects for tower cos. The business of tower cos is capex intensive and hence sharing these costs can significantly reduce costs to telcos/MNOs. Infrastructure sharing is effective in optimising the utilisation of available resources and helps to bring down the cost. In our experience there is substantial reduction in Total Cost of Ownership (“TCO”) due to sharing of passive infrastructure. A strong focus on optimisation of operational expenses through the outsourcing of non-core areas, process innovation, cost-to-serve alignment and strategic partnerships has also resulted in steady growth of the tower industry.
2.) Key Industry Developments:
2.1) 5G Update:
- TRAI has slashed the base rate for mid-band 5G airwaves to attract bids from telcos. This might have a positive impact and enable them to participate in the 5G auction,
- The Telecom Minister indicated that 5G spectrum auctions will be held in 2022,
- The Department of Telecom has taken multiple initiatives across the nation to come up with 5G use cases,
- The government began the process of first 5G spectrum auction, with the Telecom Regulatory Authority of India (“TRAI”) recommending a cut of around 35% in the reserve price for 5G spectrum, and
- The Indian Government has plans for 5G testing with the help of MNOs in the following locations throughout the country: Gurugram, Bengaluru, Kolkata, Mumbai, Chandigarh, Delhi, Jamnagar, Ahmedabad, Chennai, Hyderabad, Lucknow, Pune and Gandhi Nagar.
2.2) Adjusted Gross Revenue Update:
FY2021-22 marked a momentous year for the Indian telecom sector. While last year’s headlines were dominated by Adjusted Gross Revenue (“AGR”) dues, this year heralds the news of auctions, fund raising by telecom operators and 5G readiness. In October 2019, the Supreme court of India issued a ruling regarding the definition of AGR and associated fees and charges, which was reaffirmed in March 2020, that had a material financial impact. In September 2020, the Supreme court of India defined the expected timeline of 10 years for payments owed under the ruling. In September 2021, the Government in India approved a relief package that among other things, included (i) a four year moratorium on the payment of AGR fees owed and (ii) a change in the definition of AGR on a prospective basis.
2.3) TRAI Consultation on Street Furniture:
Universal access to broadband is critical for the success of the Digital India programme and therefore creation of supportive Information and Communications Technology (ICT) infrastructure becomes a priority for the Government as well as the industry. TRAI in its paper has focused onvarious innovative approaches for infrastructure creation to promote the broadband connectivity and enhancement of broadband speed. In this regard, inter alia two important aspects have been dealt by TRAI in the paper – (a) use of street furniture for small cell and (b) the concept of deployment of aerial fiber.
Risk Factor
Risks related to our business strategy include the following:
- Our business depends on the demand for telecom infrastructure, driven primarily by demand for data and we may be adversely affected by any slowdown in such demand. Additionally, a reduction in the amount or change in the mix of network investment by our tenants may materially and adversely affect our business,
- If our customers consolidate their operations, exit their businesses or share site infrastructure to a significant degree, our growth, revenue and ability to generate positive cash flows could be materially and adversely affected,
- New technologies or changes in our or a customer’s business model could make our mobile tower leasing business less desirable and result in decreasing revenues and operating results, and
- Our leverage and debt service obligations may materially and adversely affect our ability to raise additional finance to fund capital expenditures, future growth and expansion initiatives and to satisfy our distribution requirements.
Award & Recognitions:
Your Company has won awards from the World HRD Congress for “Dream Companies to work for in the Telecommunication Sector” category.
During the year, SDIPL won the “Most Innovative Deal” award by The Asset in its Annual Triple A Country Awards 2021 – South Asia, India for its USD 500 million offshore bond issuance.
Key Company Updates:
We are cognizant of the tremendous responsibility we have undertaken of connecting people. We believe that to achieve this, we must ensure the complete well-being of every employee within our organisation. SDIPL continues its commitment to create a workplace with the target of zero-safety incidents. We continue to accentuate our business values of HSSE to build a safe workplace for each employee, contractor and partner so that they can flourish and thrive.
Your Company takes pride in having signed a MSA with one of the most important MNO - Airtel - thus securing their continued business for many years to come. By leveraging RJIL as our anchor tenant on each site and Airtel as one of the key partners, Summit has risen to the forefront of the industry.
Operational Performance
As on March 31, 2022, our portfolio has reached 1,51,594 sites. The flow of service requests for towers is increasing across circles, with a good number of deliveries happening within Service Level Agreements (“SLAs”), including site feasibility.
There has been a marked improvement in how work is performed on the sites. In particular, performance indicators related to sites have improved significantly, namely improvement in network uptime and reduction in repeated/frequent failures. Network sustainability factor, a critical parameter for the growth and profitability of the organisation, is showing a positive trend. SDIPL places a strong focus on performance quality and improvement. As the go-to enablers of telecommunication in India, we have left no stone unturned in upgrading the functioning and efficiency of our assets.
There has been a marked improvement in how work is performed on the sites. In particular, performance indicators related to sites have improved significantly, namely improvement in network uptime and reduction in repeated/frequent failures. Network sustainability factor, a critical parameter for the growth and profitability of the organisation, is showing a positive trend. SDIPL places a strong focus on performance quality and improvement. As the go-to enablers of telecommunication in India, we have left no stone unturned in upgrading the functioning and efficiency of our assets.
Energy billing for the sharer is being done on the basis of the Fixed Energy Model (FEM) tariff card. Site audit findings are being addressed through periodic governance meetings with partners. We are achieving optimum people productivity by delegating national/special projects.
Various special projects for incremental loading and reduction in cost for Roof Top Tower (“RTT”) and GBT have been implemented. Governance mechanism has been set up with customers for reviewing the performance and taking up improvement plans to continue our journey towards operational excellence. ‘Local – Vocal’ initiative of automation of preventive maintenance activities has been initiated in several Indian languages, including Tamil, Telugu, Hindi and Malayalam. Focusing on health and safety activities, actions have been started to develop an online platform for granting permit to work and conduct site audits through a mobile application, for which a cross-functional team is working for third-party engagement.
Internal Control
The Company has adequate internal financial controls commensurate with the size of the business and nature of our operations, designed to provide reasonable assurance with regard to the accuracy and completeness of the accounting records and timely preparation and provision of reliable financial statements.
Financial Results
Our standalone financial statements have been prepared in accordance with the Indian Accounting Standards as defined in Rule 2(1)(a) of the Companies (Indian Accounting Standards) Rules, 2015 (‘‘Ind AS’’).
Brief details of financial performance of the Company for the financial year ended March 31, 2022 is as under:
| (₹ in Million) | ||
| Particulars | FY2021-22 | FY2020-21 |
|---|---|---|
| Revenue from Operations | 97,651 | 82,442 |
| Other Income | 318 | 153 |
| Loss before Tax | (33,059) | (23,380) |
| Less: Current Tax | - | - |
| Deferred Tax | - | - |
| Loss for the Year | (33,059) | (23,380) |
| Add: Other Comprehensive Income (OCI) | (933) | - |
| Total Comprehensive Loss for the Year | (33,992) | (23,380) |
| Add: Opening Balance in Retained Earnings and OCI (Adjusted) | (52,495) | (21,001) |
| Less: Other Adjustments | - | (8,114) |
| Closing Balance of Retained Earnings and OCI | (86,487) | (52,495) |
Revenue of the Company for FY2020-21 was ₹ 82,442 million, which has increased to ₹ 97,651 million in FY2021-22.
EBITDA of the Company for FY2020-21 was ₹ 30,770 million, which has increased to ₹ 35,304 million in FY2021-22.
During the year, SDIPL successfully raised USD 500 million through offshore bond issuance pursuant to Rule 144A and Regulation S of the US Securities Act, 1933 at coupon rate of 2.875% p.a, with bullet repayment after 10 years. The issuance was rated investment grade by global rating agencies, S&P Global Ratings (BBB-) and Fitch Ratings Limited (BBB). This is the first USD bond issuance by any telecom tower entity in India. This brings SDIPL at par with global telecom tower entities and help to diversify its borrowing avenues. For this issuance, SDIPL also won the “Most Innovative Deal” award by The Asset in its annual Triple A Country Awards 2021 – South Asia, India.
SDIPL has also raised ₹ 31,500 million from domestic capital markets in FY2021-22. These issuances were rated AAA by CRISIL Limited, ICRA Limited and Care Ratings Limited, the three domestic rating agencies.
The principal business of the Company is setting up, operating and maintaining passive tower infrastructure, related assets including related services. Accordingly, your Company has single segment as per the requirements of Ind AS 108 - Operating Segments. All assets of the Company are located in India and the revenue is earned in India, hence, there is single geographic segment.
Dividend
Your Directors have not recommended any dividend on equity shares and non-convertible preference shares during the year. Since no dividend has been declared by the Company in past, it was not required to transfer any amount to the Investor Education and Protection Fund (“IEPF”) and accordingly, no disclosures were required to be made during the FY2021-22.
Reserves
In view of the losses incurred by your Company during the period under review, no amount is proposed to be transferred to reserves.
