According to a latest report by ICRA, the telecom industry is expected to shell out around Rs 1-1.1 trillion on the 5G auction, despite telcos’ reservations over high spectrum prices. As per ICRA, the telecom industry has been witnessing green-shoots of recovery. While the upfront payment is likely to remain low, as Telecom Regulatory Authority of India (TRAI) has recommended an elongated payment plan, the total debt on the industry is likely to increase which is likely to keep the debt metrics subdued, ICRA notes.
The agency further mentions that the tariff hikes implemented by the industry participants 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 average revenue per user (ARPU) to around Rs. 170 by the end of FY’2023, translating into growth in industry operating income by around 10-12 per cent and operating profit before depreciation, interest, tax and amortisation (OPBDITA) by around 15-18 per cent in FY’2023.
Commenting on the report, Ankit Jain, vice president and sector head, Corporate Ratings, ICRA Limited, said, “TRAI has come out with recommendations of relaxed payment terms, which allow telcos to pay for the spectrum in 20 instalments thus ensuring very low upfront payment. This also avoids any dent on the liquidity position and is also likely to boost participation. This makes the basis for ICRA assumption of the participation in the upcoming spectrum auction to be around Rs. 1.0-1.1 trillion, in which the upfront payment is likely to be close to Rs 100 billion only. Adding this to the existing payments, the industry needs to shelve out only Rs 170 billion annually towards spectrum instalments, till the moratorium ends.”
As per the report, while the upfront payment is expected to be low, the participation will lead to an addition in deferred spectrum liabilities and thus the total debt of the industry. ICRA expects industry debt levels to increase to around Rs. 5.7 trillion as on March 31, 2023, before moderating to Rs 5.3 trillion as on March 31, 2025.
Meanwhile, Jain further adds, “The telecom operators implemented a round of tariff hikes in Q3 FY’2022, which 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 to around Rs 170 by the end of FY’2023. The industry is expected to report a growth of 10-12 per cent in its operating income in FY’2023, which will translate into OPBDITA expansion by 15-18 per cent. Industry consolidated revenues are expected to be around Rs. 2.6-2.7 trillion with OPBDITA of around Rs. 1.2-1.3 trillion for FY2023. These are likely to translate into a return on capital employed (ROCE) of around 9-10 per cent for FY’2023 for the industry.”
While the debt levels remained unwieldly, exerting pressure on the debt coverage metrics, ICRA expects the debt metrics to improve steadily going forward given its expectations of improved profit generation. The total debt/OPBDITA is expected to increase to 4.5-times for FY’2024 with the addition of deferred spectrum liabilities, before moderating to 4-times by FY’2025, while the interest coverage is likely to improve to 2.8-times for FY’2023 and further to 3.3-times for FY’2025. Meanwhile, ICRA asserts that while in the core business, 5G is likely to drive the growth, going forward, the non-telco businesses, which include – enterprise business, cloud services, digital services and fixed broadband services – will also remain crucial for chartering a growth path for the industry.
