The adjusted gross revenue (AGR) issue casts a significant degree of uncertainty on the telecom sector, and will have a long-term bearing on structure and recovery of the industry, according to rating agency Icra.
The agency said it does not expect any major impact of the ongoing nationwide lockdown on telecom services. This is because the pressure on revenues on account of limited customer addition, along with lack of physical recharges is moderated by the surge in mobile usage due to work from home regime and content viewing, supported by shift to digital recharges.
The telecom department's plea for elongation of the payment period to 20 years is still pending in the Supreme Court, and thus there is a considerable degree of uncertainty on the timelines and funding of payments, it added.
While greenshoots of recovery were visible for the industry in terms of steady average revenue per user (ARPU) increases and deleveraging measures undertaken, AGR issue may play spoil sport to an extent, the agency said.
AGR related concerns notwithstanding, the telecom industry, which witnessed severe headwinds in the past led by intense competition and pricing pressures amid high debt levels, had witnessed greenshoots of recovery in FY2020.
This is primarily due to steady ARPU improvements, deleveraging initiatives and moderation in capex intensity, it said.
"The tariff hikes announced in December 2019 is further expected to aid recovery and lead to an improvement in the operating metrics of the industry, resulting in a healthy revenue growth of 18 per cent in FY2021," Anupama Arora, Vice President and Sector Head, Corporate Ratings, Icra, said.
It observed that industry has been through a turbulent phase over the past few years with intense competition leading to pressures on revenues and profitability. But the last quarter of FY2020 brought some stabilisation of ARPU levels post the introduction of minimum recharge plans and upgradation of subscribers from 2G to 4G, resulting in improvement in industry AGR.
"Further, the telecom operators announced steep tariff hikes effective December 2019, first of its kind in a long time, which is expected to result in restoration in pricing power to the telcos and improvement in cash flow generation," Icra said in statement.
"The series of deleveraging initiatives are expected to result in reduction in debt to Rs 4.4 lakh crore as on March 31, 2020. However, debt is expected to increase to Rs 4.6 lakh crore as on March 31, 2021 despite the improvement in cash flow generation and moderation in capex intensity. This increase is primarily on account of the AGR related payables that the industry is required to pay," Arora said.
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