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The peak capex cycle for Indian telcos is over as the industry has achieved a sizeable penetration for 4G, and now the capex intensity is expected to moderate till an upgrade to 5G, according to a note by ICRA.
Now, with 4G capex summiting and 5G still some time away, the capex levels are expected to witness temperance to around ₹65,000 crore for FY20.
This, coupled with steady improvement in sales post the uptick in average revenue per user (ARPU) levels, would result in the decline in capex intensity to around 30-35 per cent, although it will still remain higher than the international peers, it said.
Capex levels remained high in the past as the telcos were expanding their 4G outreach. The capex intensity, as measured by the capex/sales ratio, has been significantly higher at over 50 per cent compared with international standards of 17-18 per cent, especially in the last few years.
“The capital expenditure incurred by telecom operators for expansion and upgradation of network has remained high on account of increasing data requirements, changes in technology and spectrum acquisition. Spectrum acquisition accounts for a majority of the capex, and thus, the debt of the industry,” said Ankit Jain, Assistant Vice-President, Corporate Ratings at ICRA.
In FY19, the industry incurred a capex of over ₹1-lakh crore. “Such a high capex, especially in light of the headwinds faced by the industry in terms of pressure on revenue, profit generation and high debt levels, led to pressure on companys’ balance sheets,” he added.
Spectrum acquisition
Over the six rounds of auctions, the industry spent more than ₹3.5-lakh crore in acquiring about 3,100 MHz of spectrum across various bands, thus adding to the capex intensity and debt of the industry.
According to ICRA, high capex levels, in conjunction with the headwinds faced by the industry amid intense competition, has kept the cash flows under pressure. “The average capex intensity for telcos has been amongst the highest over the 2017-2019 period. Over the last 5 years, the telcos were focussing on expanding their 4G networks and the total capex by the top telcos, including spectrum purchases, was around ₹5-lakh crore,” said Jain.
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