Telcos Show Signs of Recovery Due to Tariff Hike

Recently, there has been a mobile tariff hike imposed by telecom companies. It is said that the hike is showing the signs of recovery in the sector according to the rating agency, ICRA. It has also shown improvement in the sector’s operating metrics. However, the adjusted gross revenues (AGR) related dues continue to be a burden for telcos.

The Assistant Vice President of ICRA, Ankit Jain stated that the industry revenue was expected to grow by 15% in FY2020, amounting to Rs.2.57 lakh crore. The industry’s operating profit before interest, tax, depreciation, and amortisation (OPBDITA) was expected to increase by 53% in FY2020 and 21% in FY2021 contributing to reach Rs.75,000 crore.

Considering the AGR-related due amount as specified by the Supreme Court order dated 24 October 2019, the agency speculated that the recovery process may have to be extended for a longer time than expected.

Also Read: Government Might Consider Reducing Licence Fees of Telecos

ICRA mentioned that intense competition among telcos led to one of the steepest falls in the industry average revenue per user (ARPU). This led to a decline in AGR down from Rs.38,990 crore in the second quarter of FY2017 to Rs.27,825 crore in the second quarter of FY2020.

In the current fiscal year, there is some stabilisation in ARPU levels as the subscribers are made to get accustomed to the new minimum recharge plans. In addition, the telcos have announced sharp tariff hikes after a long time; resulting in greater cash flow. 

According to the rating agency’s estimation, the debt as on 31 March 2019 is at Rs.5 lakh crore. Dues to various issues such as the rights issue of Bharti Airtel and Vodafone Idea, the debt may decline somewhere around Rs.4.4 lakh crore as on 31 March 2020. 

The spectrum auction instalments for FY2021 and FY2022 have been delayed by the government. This action leads to providing a financial relief of Rs.21,000 crore per year. However, this relief remains limited as the AGR dues overpower the balance sheet of the industry.

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