Telecom sector revenue of this financial year may decline by 6% : ICRA

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According to the new report by ICRA, heightened the competitive intensity and pricing pressures have resulted in the telecom industry's revenue and EBITDA declining by an estimated 5 percent and 10 percent respectively during the financial year (FY) 2017.

 Telecom sector revenue of this FY may decline by 6% : ICRA

Harsh Jagnani, Sector Head & Vice President - Corporate Ratings, ICRA Limited elaborates:"Competition has impacted the revenue generation and profitability of all the players in second half of FY 2017, post the RJio launch. ICRA estimates the FY2018 revenue and EBITDA to decline by 6 percent and 28 percent respectively. The EBITDA for FY2018 is estimated at Rs. 46,000 crores, translating into modest operating margins of 20 percent, which, in light of the sizeable debt levels presents a high credit risk."

He added that the industry debt is likely to rise from Rs. 4.6 lakh crore as on March 31, 2017, to Rs. 4.8 lakh crore as on March 31, 2018.

 Telecom sector revenue of this FY may decline by 6% : ICRA

"The pressure on cash flows on the one hand and the need for constant capex on the other, pose a challenge towards debt servicing, highlighted by the gross debt/EBITDA crossing 10x and the interest coverage worsening to 1.25x for FY2018, " Jagnani further added.

Since the launch of Reliance Jio, with constant downward calibration of prices, the gross ARPU levels for the ICRA sample (Bharti Airtel, Reliance Communications, and Idea Cellular) have fallen by around 15 percent.

 Telecom sector revenue of this FY may decline by 6% : ICRA

The data subscriber base for the ICRA Sample declined from 151.8 million as of September 2016 to 127.9 million as of March 2017, with RJio gaining most of these subscribers. This, coupled with the fall in realizations, resulted in a decline in gross ARPU from Rs. 181 for H2 FY2016 to Rs.159 for H2 FY2017 for the ICRA sample.

ICRA pointed out that, the total industry debt as on March 31, 2017, is Rs. 4.6 lakh crore - deferred spectrum debt at Rs. 1.8 lakh crore and non-spectrum debt at Rs. 2.8 lakh crore which includes estimated bank debt of Rs. 1.1 lakh crore. Given the insufficiency of cash flow generation in comparison to repayment obligations and the CapEx requirements, the industry would need additional funding requirements to the tune of Rs. 70,000 crore for FY2018.

 Telecom sector revenue of this FY may decline by 6% : ICRA

Jagnani summarizes: "Organic deleveraging is unlikely at least before FY2019, and that too only after the industry witnessed improved pricing ability. Meanwhile, some companies are looking at inorganic deleveraging through stake sale in non-mobile services assets. In addition, the industry is seeking some concessions from the GoI to help it tide over this difficult phase. Estimated at Rs.65,000 crore for FY2017 and Rs. 40,000 crore for FY2018, the industry's contribution to the non-tax receipts of the Government of India has been significant."

ICRA added that telecom services are expected to get marginally costlier for the entire subscriber base under new Goods Services Tax (GST) - from the existing service tax at 15 percent GST rate of 18 percent. While the pre-paid subscribers would get lower usage value from fixed denomination packs, the tax burden on post-paid subscribers would increase.

 Telecom sector revenue of this FY may decline by 6% : ICRA

However, with regard to full talk-time pre-paid vouchers, the higher tax incidence would have to be absorbed by the telcos leading to some additional pressure on their cash flows. Additionally, the compliance and data collection requirements would increase and the telcos would need to invest in revamping their IT and accounting systems to keep track of revenues across various states. Although, the industry would now be able to avail input credit of taxes (VAT on the purchase of goods), which was not available till now.

 Telecom sector revenue of this FY may decline by 6% : ICRA



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