The tariff hikes by mobile operators could lift their operating profit by over 40 per cent to ₹1 lakh crore in fiscal 2023, Crisil Ratings has said.

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“Improving profits along with moratorium on government dues will provide telecom companies (telcos) room to invest an estimated ₹1.5-1.8 lakh crore for 5G services over the current and next fiscals, and improve their return on capital employed (RoCE). The tariff hikes will also support their credit profiles notwithstanding higher investments,” according to Crisil.

Telcos’ ARPU may get upward push

Says Nitesh Jain, Director, Crisil Ratings, “Recent tariff hikes and ongoing customer upgrades could push the sector’s ARPU by 20 per cent to ₹160-165 next fiscal from ₹135 in the last fiscal. ARPU growth will lead to non-linear growth in profitability due to the high operating leverage of the telecom sector. The sector’s EBITDA is seen surging 40 per cent to ₹1 lakh crore next fiscal from ₹72,000 crore in fiscal 2021. Yet RoCE will be moderate at 7-8 per cent because of high capital intensity and adjusted gross revenue dues.”

Spectrum purchase

The sector’s high capital intensity is because telcos need to continuously invest in technological upgradation and spectrum purchase. After having invested ₹5 lakh crore over fiscals 2017-2021 to roll out 4G services, they will now need to invest towards 5G rollout before reaping returns. We foresee investments of at least ₹70,000 crore at the 5G spectrum auctions likely next fiscal — if the bidding is prudent.”

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But the four-year moratorium on government dues announced by the Union Cabinet recently could provide annual cash-flow relief of ₹32,000 crore over the next four years to telcos that have opted for it, though it will continue to be considered as debt. The sector’s debt is estimated to rise to ₹4.6 lakh crore this fiscal because of additional liabilities pertaining to spectrum purchased at the recent auction.

Telcos’ financial leverage to improve

Says Rakshit Kachhal, Associate Director, Crisil Ratings, “The sector’s financial leverage, as indicated by debt-to-Ebitda, is expected to stay elevated at over 4 times this fiscal. Next fiscal, it could improve to 3.8 times (2.4-2.5 times for the top two telcos), helped by full year benefit from tariff hikes. While leverage will improve gradually, the credit profiles of players will continue to be supported by the high entry barriers created by large investments in strategic infrastructure such as spectrum rights, and tower and fibre assets”

That said, any intense bidding for spectrum beyond the metros and category A circles, and higher-than-expected investment in fiberisation for 5G, could have a bearing on credit profiles.