RCom pegs telecom industry’s cash deficit at Rs1.2 trillion
Reliance Communications says tariff war, high taxes expected to result in Rs1.2 trillion deficit between the telecom industry’s earnings and debt/payment commitments this year
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New Delhi: Intense tariff war and high taxes are expected to squeeze Indian telecom operators, leaving a gaping Rs1.2 trillion deficit between the industry’s earnings and its debt/payment commitments this year, says debt-laden Reliance Communications (RCom).
With annual interest payments, loan re-payment obligation, spectrum-related outgo and capex expected to add up to a Rs1.62 trillion tab, the operators could find it tough to meet their debt and payment needs with Rs43,000 crore of Ebitda (earnings before interest, tax, depreciation and amortization) or operating profits in 2017-18. Ebitda is a measure of a company’s operational performance.
“The reduced Ebitda (Rs43,000 crore in Financial Year 2017-18) of the industry is insufficient to cover the existing debt obligations and deferred payment commitments,” RCom cautioned in its latest investor presentation.
The gross liability of the telecom industry on account of debt as well as payments related to radiowaves amounted to a whopping Rs7.75 trillion, as on 31 March 2017.
Stating that 2016-17 recorded the first-ever decline in industry’s revenue, RCom said the combined revenue went down to an estimated Rs2.10 trillion. This resulted in fall in Ebitda by Rs12,000 crore, meaning significantly lower operating cash flows for telecom firms.
“Further in FY18 (this fiscal year), the revenue is estimated to decline further by Rs25,000 crore,” RCom said referring to the industry’s weak financial metrics.
RCom chairman Anil Ambani last week stepped in to restore investor confidence after the company’s shares were hammered in the wake of poor fourth quarter and FY17 showing, and debt downgrade by rating agencies including Moody’s, Fitch, Icra and Care.
In a rare public appearance, he said that the debt-laden RCom has been given a breather of seven months to service its debt. This is a part of a strategic debt restructuring (SDR) programme that a consortium of lenders has invoked for the company, that is saddled with Rs45,000-crore debt. Like its larger rivals, RCom too has been hit hard by intense price war unleashed by Reliance Jio, owned by Anil Ambani’s elder brother and India’s richest man Mukesh Ambani.
RCom’s presentation noted that the voice revenue per minute for the industry has seen a 25% decline in the last two quarters, while data revenue per megabyte have fallen by 40%. It cautioned that the sector could be staring at 30,000-40,000 job losses over the next 12-18 months, compared to 10,000 job cuts last year.
Underlining the high incidence of taxation, RCom said telecom is “one of the highest taxed sectors” of the Indian economy and that no other country in the world has such high tax burden on telecom sector.
The cumulative tax incidence adds up to about 33% (of revenue) in India compared to 20% in EU, 22% in China and 17% in the US. Incidentally, India, with over 1.16 billion mobile users is the second largest telecom market in the world, after China.
Noting that the government has set up a panel to resolve the financial crisis in the telecom sector, RCom said industry wants deferment of payment liability with respect to levies (imposed by the telecom department) and spectrum charges by three years.
The industry also wants a three-year moratorium on service tax/goods and services tax, for short-term cash flow relief. Other demands include reduction of licence fee to 5% (from 8%), and flat 1% spectrum levy.
Interestingly, at a time when telecom regulator is reviewing the call connect charges, RCom said that termination rate should be discontinued, given the free or low voice tariffs environment.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.