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Green shoots visible but meaningful recovery will take time in Indian telecom sector, says Ind-Ra

July 09, 2019
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According to India Ratings and Research (Ind-Ra), despite stabilisation of mobile services revenues in the fourth quarter of 2019 (4QFY19), the credit profiles of telecom players will remain under pressure in the medium term due to the high competitive intensity, elevated debt levels and continued reliance on capital infusion (promoter equity infusion, asset monetisation) for debt servicing and capex.

Ind-Ra believes that revenue recovery may continue going ahead, albeit at a slower pace, as the proportion of high average revenue per user (ARPU) subscribers in the data and broadband (3G+4G) categories continues to be low at 40-44 per cent and 30 per cent, respectively, of overall subscriber base. Also, after falling steadily over the last 2.5 years, data tariffs (expressed in terms of GB per user per month) rose 11-17 per cent during October 2018-February 2019 period, and has been stable since then. Nevertheless, Reliance Jio’s data tariffs remain at a discount of 25-30 per cent to Bharti Airtel and Vodafone Idea. This has enabled the former to continue to garner market share aggressively, signalling that competitive pressure has not yet subsided. Furthermore, while the ARPU for Bharti and Vodafone Idea increased by 17-19 per cent quarter on quarter (QoQ) in 4QFY19, the growth was optical, as incoming-only subscribers were weeded out of the system through the implementation of minimum recharge offerings.

According to Ind-Ra, the likely recovery in profitability, if any, may not be sufficient to address credit concerns such as high leverage, elevated capex, sustained negative free cash flow and the imminent need for asset monetisation. While near-term liquidity issues have been addressed through capital infusion and asset monetisation, the business model is unlikely to become attractive unless players record a substantial improvement in profitability.


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