Credit rating agency ICRA has revised its outlook of the telecom sector from Negative to Stable. The implementation of the long-awaited tariff hikes in the sector has the potential to improve the industry average revenue per user (ARPU) levels to around ₹170 by the end of FY23, according to ICRA. This, along with the government relief package, will enable the sector to undertake some deleveraging along with investing in 5G.
According to Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA Limited, “The latest round of tariff hikes, wherein the telcos increased the prepaid tariffs by around 20 per cent, will provide much-needed traction in the ARPU levels. These hikes coupled with consistent upgradation of subscribers to 4G from 2G and increase in usage of telephony services is expected to result in improvement in industry ARPU (excl. BSNL) to around ₹170 by the end of FY23.”
Revenue growth
Majumdar expects the industry revenues to grow by 18-20 per cent in FY23, followed by a growth of 10-12 per cent in FY24, which given the high operating leverage, is likely to translate in healthy expansion in operating profits, the same are projected to grow by around 30 per cent in FY23.
“These are likely to translate into a ROCE of around 10 per cent for FY23 for the industry,” Majumdar said.
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ICRA calculates that the September moratorium on AGR and spectrum payments to the sector provides an annual cash flow breather of around ₹40,000 crore for the industry till FY25.
Debt levels
Debt continues to remain the Achilles’ heel. ICRA expects industry debt levels to remain at around ₹4.7-lakh crore as of March 31, 2022, before moderating to ₹4.5-lakh crore by March 31, 2023. Telcos have been focussing on deleveraging, and Bharti Airtel recently concluded its rights issue of ₹21,000 crore and collected 25 per cent as upfront payment, while Vodafone Idea is also scouting for a fundraiser.
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Ankit Jain, Assistant Vice President and Sector Head, ICRA Limited, concluded: “The debt levels have remained unyielding for quite some time now and with the expectation of improvement in the profit generation after the latest tariff hikes, ICRA expects the debt metrics to improve as reflected by debt/OPBDITA of 3.4 times and interest coverage of 3.5 times as on March 31, 2023. The relief package provided the much-needed breather for the industry and the participants complemented the same with a tariff hike which coupled with equity raising plans would provide the ammunition required for the technology upgrade to 5G. While there has been an improvement in the operating metrics of the industry, 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.”