ICRA Predicts Improved Profitability In Telecom Sector With Tariff Hikes

The agency anticipates the industry to achieve revenues ranging from Rs 3.2-3.3 lakh crore and operating profits between Rs 1.6-1.7 lakh crore in FY2025

This trend is expected to lead to a gradual enhancement in debt metrics

The recent telecom tariff increases by telcos are expected to generate approximately Rs 20,000 crore in additional operating profits for the industry once fully implemented, according to ICRA. Ankit Jain, Vice President and Sector Head of Corporate Ratings at ICRA highlighted that these enhanced financial metrics will provide the industry with the opportunity to reduce debt and finance investments in technology upgrades and network expansion.

The domestic rating agency's assessment follows announcements from Reliance Jio and Bharti Airtel regarding tariff hikes ranging from 10 per cent to 27 per cent. This marks the first significant increase in telecom tariffs in the industry in two and a half years.

"The latest round of tariff hikes wherein the telcos increased the prepaid tariffs by around 15-20 per cent will provide the traction in the (Average Revenue Per User) ARPU levels and can result in additional operating profits of around Rs 20,000 crore for the industry once these hikes are fully absorbed," ICRA said.

The agency anticipates industry revenues to increase by 12-14 per cent in FY2025, which, considering the operating leverage, is expected to lead to a robust expansion in operating profits of 14-16 per cent. "This, in turn, is likely to result in improvement in industry Return on Capital Employed (ROCE) to more than 10 per cent for FY2025," ICRA said in a statement.

It anticipates the industry to achieve revenues ranging from Rs 3.2-3.3 lakh crore and operating profits between Rs 1.6-1.7 lakh crore in FY2025.

The industry's debt levels are forecasted to stay "moderate" and subsequently improve, supported by higher operating profits, minimal activity in recent spectrum auctions, and anticipated reductions in capital expenditure intensity. "...the debt levels are expected to moderate to around Rs 6.2-6.3 lakh crore as on March 31, 2025, with expectation of further decline going forward," Jain said.

This trend is expected to lead to a gradual enhancement in debt metrics, with industry debt to operating profit before depreciation, interest, taxes, and amortisation (OPBDITA) ratio projected at 3.7-3.9x, and interest coverage anticipated to range from 3.1-3.3x for FY2025.

On Thursday, Reliance Jio, India's largest telecom operator, announced a 12-27 per cent increase in mobile tariffs. Following suit, Bharti Airtel announced a 10-21 per cent hike in prepaid and postpaid mobile tariffs on Friday.