A tower company owns 10,000 towers at a tenancy of 1.6. Each tenant pays Rs 40,000 a month and each tower costs Rs 2.5 lakh a year to run. What is EBITDA at 1.6 and at 2.0 tenancy, and why do tower buyers pay for tenancy growth?

Portfolio EBITDA is about Rs 441 crore at 1.6 tenancy and Rs 614 crore at 2.0, up 39% on 25% more tenants. Each tenant brings Rs 4.32 lakh a year after its own cost, while the tower's Rs 2.5 lakh is fixed, so every added tenant is nearly all profit. At an assumed 10x, the extra tenants are worth about Rs 1,728 crore with no new towers. The risk is operator consolidation, which removes tenants.

A tower is a building with one landlord's costs and several rent-paying tenants, like a shop owner who sublets two counters inside her store: the rent and electricity are the same whether one counter or three are let. Each tenant pays Rs 4.8 lakh a year and costs Rs 0.48 lakh of its own, leaving Rs 4.32 lakh; the tower costs Rs 2.5 lakh whatever happens. At 1.6 tenants that is 1.6 x 4.32, Rs 6.91 lakh, less 2.5: Rs 4.41 lakh a tower, a 57% margin. At 2.0 tenants it is Rs 6.14 lakh, a 64% margin. Across 10,000 towers, EBITDA moves from Rs 441 crore to Rs 614 crore.

Because tenancy is growth with no capex. Moving from 1.6 to 2.0 adds 4,000 tenancies and Rs 173 crore of EBITDA without building a single tower; at an assumed 10x that is about Rs 1,728 crore of value, or Rs 43.2 lakh for every extra tenant signed. Compare that with building: a new tower costs Rs 25 lakh and earns only 7.3% with one tenant. This is why tower buyers model tenancy year by year and why a seller's plan always shows it rising. The multiple is an assumption for the illustration; what the fund will actually pay depends on rates and on how secure the tenants are.

Tenancy needs tenants, and the number of mobile operators in a market caps it. If one operator in a three-operator market merges or exits, its tenancies can disappear from thousands of towers at once, and the same operating leverage that made growth so valuable runs in reverse: 0.2 fewer tenants costs Rs 86 crore of EBITDA. Three diligence questions follow. What exit penalties and lock-in periods do the tenant agreements carry, and how long do they have left? How much of the planned growth is from operators that are growing their networks, as against operators under financial strain? And does the rent fall for second and third tenants under loading discounts, which would flatten the line in the chart? Confirm each against the actual agreements; this case assumes a flat rent per tenant.

The view to give: Stambh is a fixed-cost asset whose value is mostly a bet on tenancy, so the price should rest on contracted tenants and treat the move to 2.0 as upside to be paid for only in part. A buyer who pays 10x on today's EBITDA and gets 2.0 tenancy makes a strong return; one who pays for 2.0 up front has bought the plan and kept all of the operator risk.