Tariff hikes to double telcos' Ebitda: Crisil

In the last few weeks, Airtel, Vodafone and Jio have increased their tariff- a first since 2016.

MUMBAI: A tariff uptick of upto 50% in the telcom sector may double the industry's operating revenue by next fiscal, said rating agency CRISIL Ratings . The rating firm concluded that revised tariffs will improve the average revenue per user (ARPU)- a key industry metric and every Rs one increase in ARPU will add to Rs 1000 crore to industry's EBIDTA.

In the last few weeks, Bharti Airtel, Vodafone Idea (VIL) and Reliance Jio have increased their tariff- a first since 2016,bringing in some positive news for the sector under a debt of more than Rs 7 lakh crore.

"The steep tariff hikes of up to 50% being implemented by telecommunication companies (telcos) have the potential to double the industry’s EBITDA next fiscal. This is a structural positive for an industry weighed down by weak cash flows and mounting debt," said CRISIL in its report on Monday.

The rating agency expects the leverage ratio (debt/EBITDA) of the industry to improve to 4.6 times next fiscal from 7.5 times in fiscal 2019 – if the EBITDA improves as expected – and after factoring in licence fee payouts following a recent Supreme Court order.

A Supreme Court order on adjusted gross revenue (AGR), which left telcos facing over Rs1.47 lakh in additional government dues, has hit the debt laden sector. Airtel and Vodafone Idea are the worst hit, and are facing over Rs 89,000 crore in dues.

This led to an immediate tariff hike in teh industry where operators raised their price plans by upto 50%, which analsyst estimate was to cushion the AGR blow.

CRISIL’s analysis shows the revised tariffs will improve the industry’s average revenue per user (ARPU) by about 25% to Rs 145 next fiscal from around Rs 116 in fiscal 2019.

" ...given the high operating leverage of the telecom business, nearly 80% of this incremental revenue will flow straight to EBITDA. Our analysis shows every Re 1 increase in ARPU adds about Rs 1,000 crore to the industry’s EBITDA. With 25% growth in blended ARPU expected, EBITDA could double in fiscal 2021 to about Rs 60,570 crore from Rs 29,450 crore last fiscal ," sttated Monday's report.

As of September end quarter VIL, Airtel and Jio’s ARPU was Rs 107, Rs 128 and Rs 120 respectively.

CRISIL also estimates that revised price plans would lead increase SIM consolidation and cap subscriber additions.

" “The crucial part now is pricing discipline and extent of down-trading from current plans to cheaper ones by subscribers. That will determine the kind of net gains that telcos will make in the near-term," said Sachin Gupta, Senior Director, CRISIL Ratings.

The firm highlighted that the AGR payouts will impact the already stretched debt profiles of telcos.

"“Our base-case assumes a payout of Rs 50,000 crore in licence-fee arrears by these players. Any additional liability will stretch their balance sheets and necessitate fresh equity infusion and support from sponsors to maintain credit profiles," said Nitesh Jain, Director, CRISIL Ratings. The top 3 operators had Rs 3.3 lakh crore of debt as on September 30, 2019.