India Ratings today revised its outlook upwards on the telecom sector to stable from negative for the next financial year (2014-15).
The rating agency expects the telecom sector to witness polarised operational improvements in the new fiscal. It said the pre-tax margins of top three telcos together expanded by 391 basis points in the first six months of the current fiscal, while weaker telcos are still incurring pre-tax losses.
It said the outlook revision is led by strong growth potential in the emerging data business as the current penetration is only 20 per cent.
The agency, however, warned that the outlook could be revised downwards if telcos report lower earnings and higher cash outflows.
"The outlook could be revised back to negative on stressed balance sheets as well as cash flows due to lower-than-expected earnings and higher-than-expected regulatory charges. Competition from Reliance Jio could also strain telcos' pricing power and sustainability of margin improvement, thus leading to a negative outlook.
"Adverse impact of litigation and unfavourable policies on spectrum reframing in the 900 MHz band, spectrum sharing and trading policy, and spectrum usage charges will have a negative impact on the outlook," India Ratings said.
The number of telecom operators in all the 22 circles came down to 179 in June 2013 from 277 in December 2012, it said.
The top three telcos -- Bharti Airtel, Idea Cellular and Vodafone India -- continue to gain market share. Revenue market share on the basis of adjusted gross revenues of the top three telcos rose to 70.2 per cent in November, 2013 from 63.8 per cent in December 2012, while their combined subscriber base rose to 483 million from 447 million during the same period, the report said.
