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Telecom industry is on the path to recovery, but AGR an overhang: ICRA

Recent mobile tariff hike by telcos are pointing towards greenshoots of recovery in the sector.

ET Bureau|
Last Updated: Dec 30, 2019, 08.13 PM IST
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NEW DELHI: Recent mobile tariff hike by telcos are pointing towards greenshoots of recovery in the sector, according to ratings agency ICRA, although adjusted gross revenues (AGR) related dues remain a major overhang.

“The tariff hikes are expected to lead to restoration of pricing power to the telcos and would result in improvement in the operating metrics of the industry,” Ankit Jain, Assistant Vice President, Corporate Ratings, ICRA said.

“We expect the industry revenues to grow by 15% in FY2020 and 18% in FY2021 to reach Rs. 2.57 lakh crore, while the industry OPBDITA (operating profit before interest, tax, depreciation and amortisation) is expected to grow by 53% in FY2020 and 21% in FY2021 to touch Rs. 75,000 crore,” he added.

As per ICRA Research, this recovery process might be protracted if the industry is required to pay a sizeable amount to the Department of Telecom in the form of retrospective AGR related dues, as per the Supreme Court order dated October 24, 2019.

Intense competition led to one of the steepest falls in the industry average revenue per user (ARPU), translating into a decline in AGR to Rs. 27,825 crore in Q2FY2020 from Rs. 38,990 crore in Q2FY2017, said ICRA.

However, the current fiscal has witnessed some stabilization of ARPU levels driven by weaning of low ARPU subscribers with the introduction of minimum recharge plans. Further, the telecom operators have announced sharp tariff hikes effective December 2019, first of its kind in a long time, which will result into improvement in ARPU as well as cash flow generation.

As per ICRA estimates, the debt as on March 31, 2019 stood at Rs. 5.0 lakh crore. Due to deleveraging measures by telcos such as rights issue by Bharti Airtel and Vodafone Idea and IPO of the African operations by Airtel the debt is expected to decline to around Rs. 4.4 lakh crore as on March 31, 2020.

However, if the industry is required to pay the AGR debt including interest and penalties by January 2020, it has the potential to delay the recovery attempts, ICRA said.

“Although, the government has announced deferral of the spectrum auction instalments for FY2021 and FY2022, resulting in a financial succour of around Rs. 21,000 crore per year for the existing players, this relief remains limited and we believe AGR dues will weigh heavily on the balance sheet of the industry,” said Anupama Arora, Vice President and Sector Head, Corporate Ratings, ICRA.

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