Indian telcos tariff hike, reliefs won't offset unpaid dues: Fitch

The decision by all three private Indian telecommunication companies to raise tariffs from December and a two-year moratorium on payment of spectrum dues are unlikely to be sufficient to offset the impact of a recent Supreme Court judgement for incumbents Bharti Airtel and Vodafone Idea Ltd, Fitch Ratings said on Friday.

The Supreme Court ruled against the telcos in a 14-year old dispute on the definition of adjusted gross revenue (AGR) on which the incumbent operators must pay hefty dues to the government. Reliance Jio, a subsidiary of Reliance Industries Ltd, is not affected by the ruling and is likely to continue to gain revenue market share which will support RIL's deleveraging plans.

 

Fitch has a negative outlook on the sector for 2020 primarily due to heightened financial risk associated with the large unpaid AGR-related dues. On November 20, the government on announced plans to suspend the payment of deferred spectrum dues for two years, which will ease cash flow pressure on all three telcos.

Vodafone Idea and Bharti will benefit the most as their negative free cash flow will reduce by 1.7 billion dollars and 850 million dollars a year respectively for the financial year ending March 2021 (FY21) and FY22.

The incumbents have also approached the government to seek other forms of relief including, waiver or grant of deferred payment terms for the AGR dues and a reduction of licence fees and spectrum usage charges.

Despite the tariff hike, Fitch still believes it will take negative rating action on Bharti if it pays the AGR dues within three months and funds the payments entirely by debt.

Fitch said the average revenue per user (ARPU) per month is unsustainably low in India at about Rs 120 -- one of the cheapest in the world.

"Assuming a 10 per cent tariff hike, we estimate the revenues of Bharti and Vodafone Idea to each increase by 400 million to 500 million dollars while earnings before interest, tax, depreciation and amortisation (EBITDA) will grow by 200 million to 250 million dollars.

Jio is likely to benefit more from the tariff hikes as it is rapidly gaining market share, and is on its way to achieving at least 400 million subscribers and around 40 per cent of industry revenue by H2 20.

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