According to a report by CRISIL, the recent rise in tariffs and the deferred payment option given by the government could free up between Rs 1.5 trillion and Rs 1.8 trillion for the Indian telcos to invest in 5G technology while also improving their ratings. An estimated 20 per cent hike in the average revenue per user per month (ARPU), coupled with ongoing customer upgrades, could lift the operating profit, or earnings before interest, taxes, depreciation, and amortization (EBITDA), of the Indian telecom sector by 40 per cent over FY’2021 to Rs 1 trillion in FY’2023
The sector’s high capital intensity is on the account of continuous investment by telcos in technological upgradation and spectrum purchase. After having invested approximately Rs 5 trillion over FY’2017-2021 to roll out 4G services, the telcos will now need to invest towards 5G rollout before reaping returns. CRISIL foresees investments of at least Rs 700 billion at the 5G spectrum auctions, if the bidding is prudent.
The four-year moratorium on government dues announced by the Union Cabinet recently could provide annual cash-flow relief of approximately Rs 320 billion over the next four years to telcos that have opted for it. The sector’s debt is estimated to rise to approximately Rs 4.6 trillion FY’2021-22 because of additional liabilities pertaining to spectrum purchased at the recent auction.
Commenting on the report, Rakshit Kachhal, associate director, CRISIL Ratings, said, “The sector’s financial leverage, as indicated by debt-to-EBITDA, is expected to stay elevated at over 4 times this fiscal. Next fiscal, it could improve to approximately 3.8 times (2.4-2.5 times for the top two telcos), helped by full year benefit from tariff hikes. While leverage will improve gradually, the credit profiles of players will continue to be supported by the high entry barriers created by large investments in strategic infrastructure such as spectrum rights, and tower and fibre assets.”
