According to a recent report by ICRA, the next round of tariff hikes by the telcos is expected over the next one or two quarters. This, according to the firm is likely to drive revenue growth in financial year (FY) 2021-22.
Further, the report added that the tariff hikes and upgradation of subscribers from 2G to 4G is expected to result in improvement in average revenue per user (ARPU) to around Rs 220 in the medium term. This will lead to growth in industry revenue by 11 to 13 per cent over the next two years with operating margins expanding to nearly 38 per cent for FY22. Further, improvement in cash flow generation and moderation in capex intensity will limit the dependence on incremental external borrowings for operations, it added. However, the addition of adjusted gross revenue (AGR) liabilities to debt and the next round of spectrum auctions will act as a dampener.
Meanwhile, on the industry debt, ICRA expects total industry debt to remain elevated at Rs 4.7 trillion as on March 31, 2022. The improvement in operating metrics is likely to translate into an expansion of the debt coverage indicators. Further, the report added that interest coverage is expected to improve to 2.5x for FY22 from 1.8x for FY20 and total debt/ operating profit before depreciation, interest and taxes (OPBDITA) is expected to decline to 4.6x from 6.7x over the same period. Notwithstanding the improvement, the indicators continue to remain weak due to the elevated debt levels.
“The sector is moving towards the inflection point where the next phase of growth will be driven by the non-telco businesses which include enterprise business, cloud services, digital services and fixed broadband services,” said ICRA.
