Credit profiles of telcos to remain under pressure in mid-term: Ind-Ra

Credit profiles of telecom operators will remain under pressure in the medium term on the back of competition, high-debt levels and continued dependence on capital infusion for servicing loans and capital expenditure (capex), India Ratings and Research (Ind-Ra) said Tuesday.

It said that while the green shoots are visible in the telecom sector, meaningful recovery will take time.

"Despite stabilisation of mobile services revenues in 4QFY19 (fourth quarter), the credit profiles of telecom players will remain under pressure in the medium term due to the high-competitive intensity, elevated debt levels and continued reliance on capital infusion (promoter equity infusion, asset monetisation) for debt servicing and capex," it said.

 

Ind-Ra said revenue recovery may continue going ahead, but at a slower pace, as the ratio of high average revenue per user (ARPU) in the data and broadband categories is still low at 40-44 per cent and 30 per cent, respectively, of overall subscriber base.

After a steadily fall over the past two-and-a-half years, data tariffs rose 11-17 per cent during October 2018-February 2019, but has been stable since then.

Reliance Jio's data tariffs remain at a discount of 25-30 per cent to that of Bharti Airtel and Vodafone Idea, it said adding that Jio continues to garner market share aggressively, signalling that competitive pressure has not yet subsided.

Likely recovery in profitability, if any, may not be enough to resolve credit concerns such as high leverage, elevated capex, sustained negative free cash flow and the need for asset monetisation.

"While near-term liquidity issues have been addressed through capital infusion and asset monetisation, the business model is unlikely to become attractive unless players record a substantial improvement in profitability," it added.

Ind-Ra said incremental spending by operators to acquire spectrum along with investments in 5G technology could further stretch their balance sheets and "derail the recovery process".

"However, the auction may not garner adequate interest as telcos are still optimising their existing spectrum; moreover, spectrum pricing continues to be matter of concern, and 5G technology has still not been finalised," it said.