Connect with us

Headlines of the Day

Tariff hikes to ring in revenue growth and improved debt metrics in FY2022 for telcos, ICRA

There’s some good news for the telecom sector. A latest note by ratings agency ICRA says that the sector is expected to grow at 11-13 per cent over the next two years with operating margins to improve to around 38 per cent for FY22. More importantly, the note says that the sector can expect ARPU (average revenue per user) to touch Rs 220 in the medium term. ARPU is an important metric to track the performance of the telcos.

Following the Reliance Jio’s launch in September 2016, the sector ARPUs tanked. For instance, in the first quarter of FY17, the ARPUs stood at Rs 147. They fell to Rs 93 in the third quarter of FY18. Since then, the ARPUs have been going up. At the operator-level, Airtel’s ARPU is the highest at Rs 162 (as on September 2020) followed by Jio at Rs 145 and Vodafone Idea at Rs 130.

“Tariff hikes and upgradation of subscribers from 2G to 4G is expected to result in improvement in ARPU to around Rs 220 in the medium term. Improvement in cash flow generation, coupled with moderation in capex intensity, would limit the dependence on incremental external borrowings for operations. However, the addition of AGR [adjusted gross revenues] liabilities to debt and the next round of spectrum auctions would act as a dampener,” said Anupama Arora, Vice President and Sector Head (Corporate Ratings) at ICRA in the note.

The sector is likely to witness another round of tariff hikes after all telcos raised tariffs for their prepaid plans last December. The hikes are expected in 2021 as sector awaits clarity on the regulator TRAI’s long-pending recommendation on the floor price. Last December, TRAI floated a consultation paper seeking views on setting floor tariffs for both data and voice services. In their response, telcos have asked for 5-9 times increase in data prices.

Vodafone Idea recently said that it could take lead in raising tariffs, and Airtel is expected to increase them almost immediately. Though it’s not clear that Jio would follow incumbents, and that makes the whole matter tricky. In order to get feelers for a full-fledged hike, Vodafone Idea has reportedly raised the price of select postpaid plans by Rs 50 in the UP (East) circle.

“Regardless of floor prices, tariff hikes to come latest by around March 2021 and peers to follow. We estimate tariff hikes to drive around 20 per cent rise in Bharti/Vodafone Idea’s ARPU for FY22,” said ICICI Securities in a recent report.

Some experts say that tariff hikes don’t always translate into equivalent rise in ARPUs due to a variety of reasons, including the quality of customers, SIM consolidation and downtrading. Also, despite steady increase in revenues and improvement in ARPU, the sector debt is expected to remain high – likely to at Rs 4.7 lakh crore as on March 2022. Business Today

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2023 Communications Today

error: Content is protected !!