India telecom revenue will face slow growth: Fitch Ratings

Revenue and EBITDA growth at Indian telecom operators during the financial year ending March 2021 will slow due to lower data growth and weaker economic activity amid the coronavirus pandemic, says Fitch Ratings.
Smartphone customers on 4G network
Mobile service EBITDA will increase by about 15 percent in fiscal 2021 from 25 percent in fiscal 2020, as the industry will realise the full-year benefit of industry-wide tariff hikes of around 30 percent, effective from December 2019.

Telecom operators’ Q4FY20 EBITDA growth was driven by tariff hikes and 4G data growth, which will decelerate in FY21, as lockdowns were only implemented from 24 March 2020, Fitch Ratings said.

Bharti Airtel’s Indian mobile segment’s EBITDA will improve by 15-20 percent, on lower data growth, as smartphone sales are likely to drop significantly in 1HFY21 as feature-phone users are unable to upgrade to 4G smartphones during the lockdowns.

Airtel will be adding around 15 million new subscribers in fiscal 2021 as compared with the earlier prediction of 30 million, as users are unable to port their numbers during the lockdowns.

The pandemic-led economic slowdown will mostly affect lower-revenue users – those who spend INR50-100 a month – which could prevent further improvements in monthly average revenue per user (ARPU), Fitch Ratings said.

Bharti Airtel management, headed by India CEO Gopal Vittal, is confident that the pandemic will have limited impact on FY21 EBITDA growth, which it forecasts to be at least 25 percent as compared with 25 percent in FY20, supported by ARPU growth to INR170-175 a month.

Management says that data growth has increased by 20-25 percent in the short-term as users work from home and upgrade to higher-ARPU plans.

Airtel will generate small positive free cash flow in FY21, as Capex / revenue is likely to decline to around 26-27 percent on lower core Capex, interest costs and the government’s two-year moratorium on the payment of existing spectrum dues, which will defer about $840 million in each of FY21 and FY22.

Airtel has almost completed the shutdown of its 3G network across India and has redirected its 900MHz and 2100MHz spectrum for 4G usage. Telecom sector Capex peaked in 2019, as both Airtel and Jio front-laded Capex to expand 4G coverage and capacity and invested in fibre networks and in-building coverage.

Vodafone Idea struggles

Revenue market share is consolidating fast at Jio and Airtel, with Vodafone Idea losing market share.

Vodafone Idea has lost about 131 million subscribers in the last six quarters and is struggling to service its debt due to stagnant EBITDA generation, which is insufficient to cover its interest costs.

Vodafone Idea’s subscriber base is shrinking due to its deteriorating network on limited Capex, Fitch Ratings said.

Vodafone Idea has paid $926 million in adjusted gross revenue dues, against the department’s demand of $6 billion, and has not yet reported its 4QFY20 results.