Indian telcos plan lower investments than Asian peers: Fitch

Fitch said it believes lower investment is due to the weaker balance sheets of the Indian operators

Due to weaker balance sheet Indian telecom operators are planning to invest a 'significantly lower proportion' of their revenues over the next two years compared to their counterparts in China, Indonesia and Philippines, Fitch Ratings said today.

"The Indian telcos' combined 2013 capex guidance ($5-6 billion) represents just 17-19% of industry revenue compared with 30% in China and Indonesia and 20-21% for the Philippines ($55-60 billion, $4-5 billion and $1-1.5 billion, respectively," Fitch said in a statement.

Fitch said it believes this (lower investment) is due to the weaker balance sheets of the Indian operators and raises the likelihood of capex needing to rise significantly over the medium term.

"Balance sheets have become stretched due to intense competition and large spectrum payments during 2010-2012. The average funds flow from operations-adjusted net leverage for large Indian telcos is around 3.0x-5.0x versus 1.5x for the Chinese and 1.0x-2.0x for the Philippine and major Indonesian telcos," Fitch said.

The rating agency said Indian, Chinese, Philippines and Indonesian markets are at about the same stage of data penetration.

"However, Indian telcos are indicating that capex will decline - while it will step up in the other three countries as operators will invest in data infrastructure and expand their 3G/long-term evolution (LTE) networks. For example, Chinese telcos have raised their 2013 capex forecasts by 12-15%," it said.

Stating that Indian telcos have 10-15 million subscribers per MHz of spectrum per operator compared with 5-6 million for Chinese, Philippine and Indonesian telcos, which indicates that Indian telcos may need to invest more to decongest their network.

"Capex per subscriber for Indian telcos is also much lower ($6 per subscriber) than in China (over $50/subscriber), Indonesia and the Philippines (both $16/subscriber)," it added.

Bharti Airtel Limited (BBB/Negative) has indicated lower capex of $2.2-2.3 billion in FY14 (to March 2014), of which $500-600 million will be spent on its African operations, Fitch said.

"We believe that Bharti may have to raise investment in the medium term, which could put some pressure on free cash flow (FCF) generation. However, barring Indian regulatory-related payments, Fitch expects Bharti's annual FCF to be at least $500-700 million, which will support its deleveraging efforts," it added.