Tariff hikes by telcos set to ring in revenue growth in FY22: ICRA

Telecom service providers (telcos) are expected to dial in next round of tariff hikes over the next one or two quarters which is likely to drive revenue growth in new financial year (2021-22) beginning April 1, according to investment information firm ICRA.

Tariff hikes and upgradation of subscribers from 2G to 4G is expected to result in improvement in average revenue per user to around Rs 220 in the medium term which will lead to growth in industry revenue by 11 to 13 per cent over the next two years with operating margins expanding to nearly 38 per cent for FY22.

ICRA said improvement in cash flow generation coupled with moderation in capex intensity will limit the dependence on incremental external borrowings for operations. However, the addition of adjusted gross revenue (AGR) liabilities to debt and the next round of spectrum auctions will act as a dampener.

ICRA expects total industry debt to remain elevated at Rs. 4.7 lakh crore as on March 31, 2022. The improvement in operating metrics is likely to translate into an expansion of the debt coverage indicators.

Interest coverage is expected to improve to 2.5x for FY22 from 1.8x for FY20 and total debt/OPBDITA (operating profit before depreciation, interest and taxes) is expected to decline to 4.6x from 6.7x over the same period. Notwithstanding the improvement, the indicators continue to remain weak due to the elevated debt levels.

"The sector is moving towards the inflection point where the next phase of growth will be driven by the non-telco businesses which include enterprise business, cloud services, digital services and fixed broadband services," said ICRA in its outlook report.

In terms of the core business, 5G will be a growth driver. However, high spectrum prices, nascent stage of device eco-system, relatively low penetration of 4G services and limited paying capacity of the Indian consumer coupled with precarious position of the balance sheets of telcos is likely to play a spoilsport in the technology upgradation to 5G.