Tariff hikes signal better profitability for telecom industry: Domestic rating agency ICRA

ICRA's view comes after Reliance Jio and Bharti Airtel announced they would roll out tariff hikes - in the range of 10-27 per cent.

New Delhi: The latest telecom tariff hikes announced by telcos can yield additional operating profits of around Rs 20,000 crore for the industry once they are fully absorbed, ICRA said on Friday.

With an improved financial metrics, the industry will have the headroom to undertake deleveraging as well as fund capex for the technology upgrade, and network expansion, Ankit Jain, Vice President and Sector Head of Corporate Ratings, ICRA said.

The domestic rating agency's view comes after Reliance Jio and Bharti Airtel announced they would roll out tariff hikes - in the range of 10-27 per cent - marking the first major telecom tariff increase in the industry in a span of 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.

It expects the industry revenues to grow by 12-14 per cent in FY2025, which given the operating leverage, is likely to translate into healthy expansion in operating profits by 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," an ICRA statement said.

It expects industry to report revenues of Rs 3.2-3.3 lakh crore with operating profits of Rs 1.6-1.7 lakh crore in FY2025.

Industry's debt levels are expected to "moderate" and thereafter continue on a path of improvement, given increase in operating profits coupled with the muted action in the latest spectrum auctions and expected moderation in the capex 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 is likely to result in steady improvement in debt metrics with industry debt/OPBDITA at 3.7-3.9x and interest coverage at 3.1-3.3x for FY2025.

On Friday, Bharti Airtel announced 10-21 per cent hike in prepaid and postpaid mobile tariffs, on the heels of rate increase by rival Reliance Jio.

The tariff hikes will be effective from July 3.

For Airtel, while the rate of daily data add-on (1GB) will see an increase of Rs 3 -- from Rs 19 to Rs 22, in the case of 365-day validity plan offering 2GB/day, the hike is Rs 600 -- from Rs 2,999 to Rs 3,599.

In the unlimited voice plan category, tariff has been raised from Rs 179 to Rs 199, marking a Rs 20 increase in the 28-day validity plan that offers 2GB of data to users, Airtel said.

"We have ensured that there is a very modest price increase (less than 70 paise per day) on entry-level plans, in order to eliminate any burden on budget challenged consumers," Airtel said announcing revision in its mobile tariffs on Friday.

India's largest telecom operator Reliance Jio had announced a 12-27 per cent hike in mobile tariffs on Thursday.