Telcos’ Rs 1.5 trillion worth AGR liability has eroded benefits from tariff hikes, says CRISIL

According to a report by CRISIL, the adjusted gross revenues (AGR) liability of Rs 1.5 trillion on telecom companies has nullified the benefits the telcos could have accrued from the tariff hike announced in December 2019.

Further, it has also pulled back companies’ return on capital employed (ROCE) to 4-5 per cent.

Consequently, the report noted, the operators need to push average revenue per user (ARPU) by 25 per cent to Rs 175-180 in the next 6-12 months in order to achieve a ROCE of 10 per cent.

As per CRISIL’s estimates, a Re 1 increase in ARPU can add about Rs 10 billion to the industry’s earnings before interest, tax, depreciation and amortisation (EBITDA), due to high operating leverage of the industry.

Hence, a 25 per cent increase in ARPU could potentially double the sector’s EBITDA to Rs 790 billion in fiscal 2022 compared with Rs 385 billion in fiscal 2020.