ICRA upgrades telecom services industry outlook to 'stable'

• The credit rating agency ICRA has recently revised the outlook for the telecom sector from negative to stable as recent prepaid tariff hikes taken by the Big 3.
• The implementation of the long-awaited tariff hike in this sector has the potential to improve the industry average revenue per user (ARPU) levels to around Rs 170 by the end of FY23, according to ICRA.
• This, along with the government relief package, will enable the sector to undertake some deleveraging along with investing in 5G.

ICRA Projections

• ICRA estimates telecom services industry revenue to grow by 18-20 per cent in the financial year 2023, followed by 10-12 per cent growth in the financial year 2024, given the higher operating leverage, is likely to translate into healthy growth overall telco operating profits.
• ""The telecom industry has implemented the long-awaited tariff hike, which has the potential to improve the industry ARPU level to around Rs 170 by the end of the financial year 2023,"" ICRA said in a media statement.
• ICRA estimates the telco's operating profit to grow by around 30 per cent in the financial year 2023, which is likely to translate into a ROCE (return on capital employed) of around 10 per cent for the industry in the financial year 2023.
• The rating agency also estimates that the recent four-year moratorium on the spectrum and adjusted gross revenue (AGR) payments will provide annual cash flow relief of around Rs 40,000 crore for the industry till the financial year 2025.
• Highlights of the recent telecom relief package announced by the government in September included a four-year moratorium on the spectrum and AGR payments, rapid reduction in BGs and an option to convert statutory dues into government equity.
• ICRA said the moratorium on dues will have an impact on the government's non-tax receipts from the telecom sector.
• But it expects recent prepayments of spectrum dues by Airtel and Jio relating to past auctions to make up for any losses to the government.
• Earlier this month, Airtel made a prepaid payment of Rs 15,519 crore to the Department of Telecommunications (DoT), thereby clearing all dues related to the airwaves it bought in the 2014 auction.
• Similarly, in October, Jio had prepaid Rs 10,792 crore to the DoT to clear its dues for spectrum purchases in the 2016 auction.
• For the financial year 2022, ICRA estimates that the telecom sector will contribute around Rs 54,000 crore to the government's non-tax receipts, which is close to the budget estimate.

Investment information and credit rating agency (ICRA)

• ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies.
• It serves as an independent and professional investment Information and Credit Rating Agency.