edotco Group Sdn Bhd is a company that can relate to what celebrities go through. Despite repeated denials, celebrities often have to deal with relationship rumours. In edotco’s case, it is often linked to plans to go public.
In an interview, CEO Suresh Sidhu once again clarifies that the integrated telecommunications infrastructure service company has no plans to undertake an initial public offering (IPO) anytime soon.
Rather, its emphasis is on establishing a track record, particularly in building more businesses with third parties.
“That (IPO) is always everyone’s first question. My simple answer is, edotco is progressing as a business. We are very much focused on that [and] less concerned about any IPO or monetisation programme,” Suresh tells The Edge.
“In essence, that (IPO) is really up to our parent, Axiata Group Bhd. When [Axiata thinks] we are ready, they will discuss on making a concrete plan. At this point in time, the focus is on making sure that edotco remains a full-fledged standalone independent [tower infrastructure service] business that serves customers in all countries.
“Like all shareholders, when they (Axiata) invest in a business, they want to get some returns from it. So, I think, of course, it (IPO) is an option, but I am not sure that is necessarily the only option.
“If I can speak for Axiata, they are always looking at how to monetise the business eventually, but that is not the current goal. I think they are focusing on growing this as a business first. That is the primary focus right now, not just for myself as the CEO but also for the board of Axiata and the principal shareholder.”
In May, Axiata president and group CEO Tan Sri Jamaludin Ibrahim was quoted as saying that the group had “no immediate plans” to list its wholly-owned tower infrastructure service unit.
Suresh says edotco’s shareholders are in no rush to list the company. “[Our] mantra is ‘do the right thing, don’t do the thing’.”
Business-wise, edotco has been busy. Last December, it completed the acquisition of a 75% stake in Digicel Myanmar Tower Co Ltd (Digicel MTC), adding some 1,250 telecom towers to its portfolio.
In March this year, it entered into a collaboration agreement with DiGi.Com Bhd to enhance network coverage by enabling the latter access to its infrastructure footprint of over 3,600 sites nationwide.
The number of telecom towers edotco operates has grown to about 17,000 across six countries, from 13,000 that were transferred from Axiata back in 2013, the year edotco was established.
“I believe we have done a pretty good job. We are working with DiGi [in Malaysia] and we are working with non-Axiata entities in other countries. We have ventured into Myanmar [with Digicel MTC]. These are the things we are proud of [as] they show real progress and capabilities,” says Suresh.
He notes that the company’s tower portfolio is also driven by organic growth of the 3,000 telecom towers edotco built, which are mainly in Bangladesh to support Axiata’s 91.59%-owned subsidiary Robi Axiata Ltd there.
“We are quite pleased that the growth is not just inorganic, it is also organic growth,” he says.
edotco also provides management services for 6,000 base transceiver station sites.
Some progress in industry tenancy ratio
Meanwhile, edotco has made some progress in terms of its industry tenancy ratio, which indicates the average number of tenants per tower.
“We are now over 1.5 in terms of tenancy ratio. When we started, we were close to 1.35 in 2013. That is another bit of good news because, remember, it is the numerator over the denominator, so although we added 4,000 towers, we actually added tenancies far greater than the number of towers,” Suresh says.
He adds that to be a mature telecom tower company (towerco), it typically requires a tenancy ratio of at least 1.7.
“[A tenancy ratio of] 2.0 is stellar, but typically, when we look at some of the mature towercos, they are normally around 1.7 or 1.8. That is the number we’re aiming for. The ratio may fluctuate because some years, we build more, or less, and a new tower always starts with only one tenant. So, it takes time to build that,” he says.
“Back in 2013, it (edotco’s order) was also nearly 100% [coming from] Axiata. The growth [in tenancy ratio] from 1.35 to 1.5 started when we attracted third parties such as mobile network operators and wireless broadband players in various countries to use us as a standard solution.”
Having third parties as edotco’s clients is an achievement for Suresh, who took up the CEO’s post in August 2014 after relinquishing his position as chief operating officer at Celcom Axiata Bhd.
“It is one thing to sell to yourself (Axiata Group), it is quite another to sell to someone who does not have to come to you,” he says.
For Suresh, the biggest challenge of having Axiata as a parent is to convince customers that edotco is truly independent. “That is the hardest. It has taken us quite a long time [to convince customers]. This year, we are starting to see things ticking up nicely. I think we have done a good job in convincing [customers] that we can work with them. We [are] starting to even build towers where the primary (first) tenant is [a] non-Axiata [company].
“We are not here as a secret Axiata front, we practise Chinese walls, that is, we have arm’s length agreements.” A Chinese wall refers to procedures taken by a firm to prevent information obtained from being disclosed to employees in the same firm who represent other clients that may profit from the information.
More recently, edotco also secured an order to build up to 300 towers for a third-party company in Bangladesh, but client confidentiality prevents Suresh from naming the customer.
“This is our biggest order to date from a non-Axiata company. In comparison, in Malaysia, we have built about 10 to 20 towers for non-Axiata companies so far. We believe the numbers will start to increase considerably in coming periods,” Suresh says.
He adds that another way to measure success is through net margin per tower. “If a towerco can get over 60% [net margin] per tower, it is starting to do well. We are there in some countries.
“Take American Tower [Corp], worth US$50 billion, for example. It has been around for 30 years. It operates 100,000 towers globally and probably enjoys a 60% to 70% earnings before interest, taxes, depreciation and amortisation margin,” says Suresh, when asked how long a towerco will take to achieve a 60% net margin per tower.
A search on Companies Commission Malaysia’s website shows that edotco posted a 57.1% increase in net loss to RM27.16 million in the financial year ended Dec 31, 2014 (FY2014) from a year ago. Revenue came in at RM17.2 million, compared with zero in FY2013 when it took over Axiata’s tower portfolio.
However, edotco’s Malaysia operations, which are undertaken by its wholly-owned subsidiary edotco Malaysia Sdn Bhd, posted a net profit of RM138.22 million in FY2015, more than double FY2014’s RM67.39 million. Revenue grew to RM449.39 million from RM425.04 million.
It is no wonder Suresh describes a towerco as a “generational” type of business.
“[The] good news is our business is relatively stable and there are opportunities currently in the way the world and market are going. But year on year, you are not going to get 50% or 100% revenue growth unless you undergo a merger or acquisition,” he says.
“People in the industry know that. People who want to get into the industry can get a little bit misguided by the buzz day here. They have to be patient, [take a] long- term [stance] and have to have a large balance sheet to fund these towers. It is important that people take a 10-year view about the industry and business.”
He says edotco is fortunate to have Axiata as its parent as the latter has a strong balance sheet.
For now, Suresh declines to provide further details of edotco’s financials, saying that they will be revealed “in due course”.
A quick search for towercos in Bloomberg reveals that NASDAQ-listed SBA Communications Corp — which has nearly 10,000 or over 30% more towers than edotco — has a market capitalisation of RM56.59 billion.
India-based Bharti Infratel Ltd, which has more than twice the number of edotco’s towers, has a market cap of RM43.98 billion at the time of writing.
Axiata’s market cap stood at RM46.42 billion last Friday.
It is worth noting that American Tower is a real estate investment trust. That means Axiata has the flexibility to float edotco under a trust structure when the time comes.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.