ICRA revises outlook for telecom sector; says ARPU to increase to Rs 174 by FY23 end

According to the agency's estimates, the industry's revenues will grow by 18-20 percent in FY23 and growth of 10-12 percent in FY24, Economic Times reported.

Since the industry has high leverage operating leverage, these are likely to translate into healthy expansion in overall telecom profit.

“The telecom industry has implemented long-awaited tariff hikes, which has the potential to improve industry ARPU levels (excluding BSNL) to around Rs 170 by end-FY23,” ICRA said in a media statement Wednesday.

Increased profit generation coupled with the relief package provided by the government gives the sector enough space to undertake deleveraging and capital expenditure for the technological upgrade to 5G.

ICRA estimates telco operating profits to grow by around 30 percent in FY23, which is likely to also translate into a ROCE (return on capital employed) of around 10 percent for the industry in FY23.

“The latest round of tariff hikes 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,” Sabyasachi Majumdar, senior vice president (Corporate Ratings) at ICRA said.

The ratings agency also estimates that the recent four-year moratorium on  spectrum and adjusted gross revenue (AGR) payments would provide an annual cash flow breather of around Rs 40,000 crore for the industry till FY25.

Telecom relief package announced by the government in September included the four-year moratorium on spectrum and AGR payments, sharply reduced BGs (Bank Guarantees), and the option to convert statutory dues into government equity.

This, the agency, noted, will reduce the government's non-tax income, but it expected that the recent prepayments of spectrum dues by Jio and Airtel relating to past auctions to make up for any losses to the government.

Earlier this month, Airtel prepaid Rs 15,519 crore to the Department of Telecommunications (DoT), clearing all dues relating to airwaves bought in the 2014 auction. Likewise, Jio in October had prepaid Rs 10,792 crore to DoT for clearing its dues towards spectrum buys in the 2016 auction.

For FY22, ICRA estimates the telecom sector to contribute around Rs 54,000 crore to the government's non-tax receipts, which is close to the budgeted estimate, according to the ET report.