Supreme Court order on the AGR puts a burden of  ₹1.47 lakh crore on the telecom industry (AP)
Supreme Court order on the AGR puts a burden of 1.47 lakh crore on the telecom industry (AP)

Airtel, Vodafone, Jio tariff hike: Telcos operating profit may double in FY21, says report

  • Crisil said its analysis shows every Re 1 added to the Arpu adds about 1,000 crore to the industry's operating profit
  • The average revenue per user, arguably the most widely tracked number by analysts, will go up by 25% following the price hikes

Mumbai: The steep tariff hikes, effected earlier this month by the battered telcos which held prices at rock bottom levels for nearly five years, can help more than double their operating profit to 60,570 crore in FY21 from 29,450 crore in FY19, says a report.

It is a "structural positive" for the sector which has been weighed down by weak cash flows and mounting debt levels, leading domestic ratings agency Crisil said on Monday, adding the hikes are a good opportunity for the industry to "repair its financials and become sustainable".

In the aftermath of the adjusted gross revenue order by the Supreme Court that favoured the government view, all the major telcos hiked subscriber tariffs by up to 40 percent, starting with the prepaid customers.

The Supreme Court order on the AGR puts a burden of 1.47 lakh crore on the industry that has been bleeding for years and sitting on a debt pile of close to 4 lakh crore.

"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, a senior director at Crisil.

The industry's debt to operating profit ratio will come down to 4.6 times from the present 7.5 times, if the operating profit improvements indeed happen as expected, the agency said, adding the top three players presently owe 3.3 lakh crore to the system.

The average revenue per user, arguably the most widely tracked number by analysts, will go up by 25 percent following the price hikes to 145 next fiscal from 116 earlier, the agency said.

It said 80 percent of the additional revenue will flow straight into the operating profit given the high operating leverage at which the companies operate.

The agency said its analysis shows every Re 1 added to the Arpu adds about 1,000 crore to the industry's operating profit, and going by the same, the overall operating profit will double to 60,570 crore in FY21 from 29,450 crore in FY19.

The tariff hikes would accelerate SIM consolidation and curb subscriber additions, it added.

On the AGR, it said its base-case assumes a payout of 50,000 crore in license fee arrears by the industry.

"Any additional liability will stretch their balance sheets and necessitate fresh equity infusion and support from sponsors to maintain credit profiles," another Crisil director Nitesh Jain said, adding he has not factored in the 5G spends.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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