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ICRA upgrades telecom industry outlook to 'stable' amid tariff hike, relief measures

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The telecom tariff hike and the recent relief package offer sufficient headroom for the industry to undertake deleveraging, an ICRA report said. From Bharti Airtel launching a rights issue to Vodafone Idea looking to raise funds. The industry will contribute Rs 54,000 crore to the government's non-tax receipts, close to the budget estimate for the fiscal. However, the debt will continue to remain the "Achilles' heel" of the industry, the report warned. 

ICRA upgrades telecom industry outlook to 'stable' amid tariff hike, relief measures
The telecom tariff hike and the recent relief package offer sufficient headroom for the industry to undertake deleveraging and fund Capex for 5G tech upgrade, ICRA said on Wednesday, revising the outlook on the telecom services sector to 'stable' from 'negative.' The hike coupled with consistent up-gradation of subscribers to 4G from 2G and increase in usage of telephony services is expected to result in improvement in industry ARPU (average revenue per user) to around Rs 170 by the end of FY2023, it said.
"...ICRA has revised its outlook on the telecom services industry to stable from negative," according to a statement. The telecom industry has implemented the long-awaited tariff hikes, which have the potential to improve the industry ARPU levels to around Rs 170 by the end of FY2023, according to ICRA.
"This will result in increased profit generation, which coupled with the relief package announced by the government, provides enough headroom for the industry to undertake deleveraging as well as fund capex (capital expenditure) for the technology upgrade to 5G," ICRA said.
Sabyasachi Majumdar, senior vice-president and group head (corporate ratings) of ICRA Ltd, said the latest round of tariff hikes where telcos increased the prepaid tariffs by around 20 percent would provide much-needed traction in the ARPU levels.
"We expect the industry revenues to grow by 18-20 percent in FY2023, followed by a growth of 10-12 percent in FY2024, which given the high operating leverage, is likely to translate in healthy expansion in operating profits, the same are projected to grow by around 30 percent in FY2023," it said. As per ICRA's calculations, the moratorium on dues, announced as part of the relief package, provides an annual cash flow breather of about Rs 40,000 crore for the industry till FY2025.
The telcos' bank guarantee (BG) requirement has also been slashed. The Department of Telecommunications has started returning the BGs to the telcos, noting this improves the sector's financial flexibility. "While the moratorium on the dues would impact the non-tax receipts of the government from the telecom sector, two telcos have prepaid their dues towards earlier spectrum auctions totalling to Rs 26,300 crore thereby making up for the loss to the government," it said.
For FY2022, the telecom sector is expected to contribute around Rs 54,000 crore to the government's non-tax receipts which will be close to the budgeted estimate for the fiscal, it estimated. Debt, however, continues to remain the "Achilles' heel" of the industry, it warned.
ICRA expects industry debt levels to remain at around Rs 4.7 lakh crore as of March 31, 2022, before moderating to Rs 4.5 lakh crore as of March 31, 2023. "Telcos have been focusing on deleveraging. Bharti Airtel recently concluded its rights issue of Rs 21,000 crore and collected 25 percent as upfront payment, while Vodafone Idea is also scouting for a fundraiser," ICRA said in a statement.
Ankit Jain, assistant vice-president and sector head at ICRA Ltd, said that while there has been an improvement in operating metrics of the industry, the next phase of growth will be driven by the non-telco businesses, including enterprise business, cloud services, digital services and fixed broadband services.
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