MUMBAI: According to a local rating agency's report on Monday, Indian telecommunications companies are projected to witness a potential increase of up to 15 percent in their operating profits, amounting to Rs 1.2 lakh crore in the fiscal year 2023-24.
During the previous year, these companies had registered an operating profit of Rs 1.04 lakh crore, as reported by Crisil Ratings.
The anticipated growth in profitability for the fiscal year 2023-24 within the industry is primarily attributed to the escalating demand for larger data packages, driven by an uptick in data consumption. This growth comes after the industry faced substantial challenges in recent years, following the entry of well-funded competitor Reliance Jio.
Despite the absence of widespread tariff increases in the near future, the average revenue per user (ARPU) is predicted to increase by 8-10 percent to Rs 190. This rise is expected due to the telcos' focus on transitioning 4G subscribers to 5G services, as stated by Manish Gupta, the deputy chief ratings officer.
Gupta further elaborated, stating that the growth would be propelled by an increase in data usage per subscriber per month, reaching 23-25 GB this fiscal year, compared to 20 GB in the previous fiscal year. This, coupled with adjustments to tariff plans, is projected to result in enhanced operating profitability.
The agency emphasized the industry's robust operating leverage, with around three-fourths of total costs being fixed, translating any growth in ARPU directly into operating profits. The agency's data highlighted a nearly twofold increase in operating profit between FY20-23, while ARPU grew by 1.4 times.
The prevalence of 4G technology is expected to persist for a period, with the monetization of 5G services progressing gradually. This pace is contingent upon the development of use cases and the wider adoption of 5G-enabled devices in India, which remains relatively low at present.
In the fiscal year 2023-24, telecom companies are anticipated to allocate Rs 90,000 crore towards bolstering network infrastructure, an increase from Rs 80,000 crore in the previous fiscal year. This augmentation aims to cater to the surge in data demand and to enhance overall services and customer experiences.
The report indicated that private telecom operators are well-equipped in terms of spectrum, having invested Rs 1.5 lakh crore in the previous auction. Consequently, the anticipated expenditure for spectrum acquisition in the upcoming auction is expected to be lower.
Addressing the critical matter of debt, the agency's director Naveen Vaidyanathan projected an increase in quantum to Rs 6.5 lakh crore by the end of the fiscal year 2023-24, up from Rs 6.3 lakh crore in the preceding year. This escalation is largely driven by investments in 5G technology.
Vaidyanathan added that the leverage of telcos rated by Crisil Ratings is likely to improve due to enhanced profitability. The debt-to-EBITDA ratio is anticipated to be 3.0 times in the current fiscal year, compared to 3.3 times in the previous fiscal year.
The report concluded by highlighting that larger-than-expected investments in 5G networks and spectrum will impact credit metrics, serving as a significant area of monitoring moving forward.
