Fitch has good and bad news for the telecommunications industry

The growth of pre-tax earnings and earnings of Indian telecom companies in the financial year ending March 31, 2021 (FY21) will slow due to slower data growth and weaker economic activity amid the coronavirus pandemic, Fitch Ratings said Thursday.

“Despite the effect of the pandemic, we expect FY21 industry mobile service EBITDA to increase by approximately 15 percent year-on-year, which will exceed our forecast for Indian GDP growth of 0.8 percent as the industry It will realize the full year benefit from industry-wide rate increases of around 30 percent, effective as of December 2019, “the rating agency said in a note.

Growth in fiscal EBITDA for fiscal year 2016 (April 2019 to March 2020) for the telecommunications industry is estimated to be 25%.

The 4QFY20 EBITDA growth of telecoms companies was fueled by rate hikes and 4G data growth, which Fitch predicted would slow down in fiscal year 21, as the locks were only implemented as of March 25. .

Fitch said revenue market share is fast consolidating on billionaire Mukesh Ambani’s Reliance Jio and Sunil Bharti Mittal’s Bharti Airtel, with Vodafone-Idea Ltd rapidly losing market share.

Vodafone Idea Ltd, a joint venture of Aditya Birla’s Idea Cellular Group and Vodafone UK, lost around 131 million subscribers in the past six quarters and is struggling to pay its debt due to stagnant EBITDA generation, which is insufficient to cover your interest costs.

“The telecommunications company’s subscriber base is shrinking due to the deterioration of the limited capital spending network,” he said, adding that Vodafone Idea has paid only $ 926 million in adjusted gross income installments, against demand from the department of USD 6 billion, and has not yet reported its Results 4QFY20.

The rating agency said an auction of 5G spectrum seems increasingly unlikely in 2020 in light of limited financial flexibility by telecommunications companies, a high base price of $ 7 billion for pan-Indian 5G spectrum in a 3.3 GHz-3.6 GHz bandwidth and a limited business case for 5G, when 4G penetration is only around 50 percent.

Bharti and Vodafone Idea have publicly stated that they will not participate in 5G auctions at such high prices.

For Bharti Airtel Ltd, he forecast that EBITDA for the Indian mobile segment FY21 will improve by 15-20 percent, below its previous expectation of 20-25 percent, on slower data growth as sales are likely of smartphones drop significantly by 1HFY21 as a feature- phone users cannot upgrade to 4G smartphones during crashes.

“We have also reduced our assumption of the net subscriber sum for fiscal year 2011 to around 15 million, from 30 million, as users are unable to port their numbers during blockades. The economic slowdown led by the pandemic will primarily affect low-income users, those who spend Rs 50-100 per month, which could prevent further improvements in the average monthly income per user (ARPU), “he said.

However, Bharti management is confident that the pandemic will have a limited impact on the growth of EBITDA for fiscal year 2011, which is forecast to be at least 25 percent (fiscal year 2013: 25 percent), backed by growth. ARPU of 170-175 rupees per month. Management says data growth has increased by 20-25 percent in the short term as users work from home and upgrade to higher ARPU plans.

Bharti has paid only $ 2.6 billion (Rs. 18 billion rupees) to date to settle his adjusted gross income, compared to the original demand of $ 4.9 billion from the Telecommunications Department, Fitch said.

Market leader Reliance Jio, a subsidiary of Reliance Industries Ltd, reported sequential revenue and EBITDA growth of 6 percent and 11 percent, respectively, as ARPU growth was less pronounced by 2 percent at Rs 131 This was due to the significant proportion of Jio’s clients who are on long-term plans, in which rate increases will be implemented only in 1TFY21.

Additionally, the sale of incremental Jiophones led to slower growth in ARPU.

Their monthly data and voice usage per user was 11.3GB and 771 minutes, respectively.

Jio continued to gain market share at the expense of India’s third largest telecommunications company, Vodafone-Idea Ltd, as it added 18 million subscribers to reach a customer base of 388 million, the highest in the industry.

“We expect Jio’s Fio21 mobile revenues to increase by at least 20 percent, led by a higher monthly ARPU of Rs 147 and subscriber additions of 30 million (FY20: 80 million),” Fitch said.

Fitch expected Bharti Airtel to generate a small positive free cash flow in fiscal year 21, as capital spending / income is likely to decrease to around 26-27 percent (fiscal year 2015: 29 percent) in expenses of lower capital, interest costs, and the government’s two-year moratorium on the payment of existing spectrum fees, which will differ by approximately $ 840 million in each of fiscal years 21 and 22.

Bharti has almost completed the closure of its 3G network in India and has redirected its 900MHz and 2100MHz spectrum for the use of 4G. “We believe that the sector’s capital spending peaked in 2019 as both Bharti and Jio investment capital expanded 4G coverage and capacity and invested in fiber networks and coverage in buildings,” he added.

—UP News Info