Telecom tariff hikes to ring in improved debt metrics in FY22: ICRA
Dec 23, 2020
New Delhi [India], December 23 : Telecom service providers (telcos) are expected to dial in next round of tariff hikes over the next one or two quarters which is likely to drive revenue growth in the next financial year (FY2021-22), according to investment information firm ICRA.
In the light of higher funding requirements arising from sizeable pay-outs towards adjusted gross revenue (AGR) liabilities, spectrum purchase, regular revenue share with the government and auction installments (which start from FY23), it is imperative for the players to embark on sustainable and sizeable expansion in the average revenue per user (ARPU).
ICRA said the ARPU expansion will result in revenue growth and given the high operating leverage, the margins are also expected to expand. These measures are expected to translate into improvement in the debt coverage metrics of the industry, even as the overall debt remains high.
"Tariff hikes and upgradation of subscribers from 2G to 4G is expected to result in improvement in ARPU to around Rs 220 in the medium term," said Anupama Arora, Vice President and Sector Head for Corporate Ratings at ICRA.
She said the industry revenue is likely to grow by 11 to 13 per cent over the next two years with operating margins improving to around 38 per cent for FY22.
Improvement in cash flow generation coupled with moderation in capex intensity will limit the dependence on incremental external borrowings for operations. However, the addition of AGR liabilities to debt and the next round of spectrum auctions will act as a dampener.
ICRA expects total industry debt to remain elevated at Rs 4.7 lakh crore as on March 31, 2022. "While some improvement is expected in the debt coverage indicators following the improvement in operating metrics, they continue to remain weak," said Arora.
Ankit Jain, Assistant Vice President at ICRA, said the sector is moving towards the inflection point where the next phase of growth will be driven by the non-telco businesses, which include enterprise business, cloud services, digital services and fixed broadband services.
In terms of the core business, 5G -- which is knocking on the doors -- will be the growth driver. It has already been launched in some countries.
"However, given the high spectrum prices, the nascent stage of the eco-system, the relatively low penetration of 4G services and limited paying capacity of the Indian consumer coupled with the precarious position of the balance sheets of telcos is likely to play a spoilsport in the technology upgradation to 5G," said Jain.
