Telcos' debt to rise to Rs 4.7 lakh crore by 2022 despite tariff hikes, says ICRA

Telecom companies in India are likely to witness a rise in their debt levels to Rs 4.7 lakh crore by March 2022 despite tariff hikes, according to estimates by domestic ratings agency ICRA.

The ratings firm also stated that the tariff increase is expected to drive revenue growth in FY2022, touching Rs 220 ARPU (Average Revenue Per User) in the medium term. ARPU is an important metric to track the performance of the telecom operators. It is the amount of money the average user contributes to revenue.

"Debt continues to remain the Achilles' heel of the industry. Although sizeable deleveraging was done in FY2020, which along with moderation in capex intensity has resulted in a decline in debt to Rs. 4.4 lakh crore as on March 31, 2020; and though improvement in cash flow generation is anticipated, the debt levels are expected to increase further to Rs. 4.7 lakh crore as on March 31, 2022," ICRA said in a report.

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The reason behind the rise in debt levels is because of the accumulation of AGR (Adjusted Gross Revenue) liabilities in debt, besides the proposed spectrum auctions, the report noted.

According to data released by the Telecom Regulatory Authority of India (TRAI), the industry revenues in the first half of FY21 surged 25 per cent on-year, while the ARPU rose from Rs 74 to Rs 90.

Anupama Arora, Vice President and Sector Head, Corporate Ratings, ICRA said that the (tariff) hikes and upgradation of subscribers from 2G to 4G is expected to lead to an improvement in ARPU (average revenue per user) to approximately Rs 220 in the medium term.

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"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. ICRA expects the industry revenue to grow by 11-13% over the next two years, with operating margins improving to around 38% for FY2022," she noted.

Meanwhile, Ankit Jain, Assistant Vice-President, ICRA mentioned that the sector is "moving towards the inflection point" whereby the next phase of growth will be driven by the "non-telco businesses" comprising cloud services, enterprise business, fixed broadband services, and digital services. In terms of core business, he added, 5G "would be the growth driver."

Jain, though, stressed on factors such as limited paying capacity of the Indian consumer, along with the risky position of the balance sheets of telecom companies, which could be a dampener to the 5G upgradation.

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