India telecom ARPU to touch Rs 170: ICRA

Indian telecom operators’ industry ARPU levels are expected to touch at around Rs 170 by the end of FY2023, following the increase in tariff hikes, ICRA said.
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This will result in increased profit generation, which coupled with the relief package announced by the Government of India, provides enough headroom for the industry to undertake deleveraging as well as fund Capex for the technology upgrade to 5G.

With these tailwinds, ICRA has revised its outlook on the telecom services industry to Stable from Negative.

Indian telecoms such as Bharti Airtel, Vodafone Idea and Reliance Jio have increased the prepaid mobile tariffs by around 20 percent that 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 Rs. 170 by the end of FY2023,” Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA, said.

The industry revenues are expected to grow by 18-20 percent in FY2023, followed by a growth of 10-12 percent in FY2024, which given the high operating leverage, is likely to result into around 30 percent increase in operating profit in FY2023. These are likely to translate into a ROCE of around 10 percent for FY2023 for the industry.

India provided a moratorium on the AGR and spectrum auction dues for four years. This moratorium provides an annual cash flow breather of around Rs 40,000 crore for the industry till FY2025. Moreover, the bank guarantee requirement for the telcos has been slashed and the Department of Telecom has started returning the BGs to the telcos, which improves the financial flexibility of the sector.

Two telcos have pre-paid their dues towards earlier spectrum auctions totalling to Rs 26,300 crore. The telecom sector is expected to contribute to around Rs 54,000 crore to GoI’s non tax receipts for FY2022.

ICRA expects industry debt levels to remain at around Rs 4.7 lakh crore as on March 31, 2022, before moderating to Rs 4.5 lakh crore as on March 31, 2023. Telcos have been focusing on deleveraging and Bharti Airtel recently concluded its rights issue of Rs 21,000 crore and collected 25 percent as upfront payment, while Vodafone Idea is also scouting for a fund raiser.

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 breather for the telecom industry. Mobile operators have complemented the same with a tariff hike which coupled with equity raising plans would provide the ammunition required for the technology upgrade to 5G.

The next phase of growth will be driven by non-telco businesses, which include – enterprise business, cloud services, digital services and fixed broadband services, Ankit Jain, Assistant Vice President and Sector Head, ICRA, said.