The Indian telecom industry witnessed significant pressure in FY 2018, and telecom operators are yet to settle down. As per ICRA, the industry is expected to recover from FY 2019 onwards on the back of a consolidated structure, better pricing power and data usage with greater price-inelasticity. Also, the agency is expecting the industry revenue to increase by 10 percent and EBITDA to increase by 42 percent, although this would still be lower than FY2017 levels.
During the last few quarters, the Indian telecom industry has witnessed a phase of turbulence, with the launch of operations by Reliance Jio Infocomm leading to intense competition, pricing pressures and a decline in revenues and profitability. These factors, along with the reduction in Interconnect Usage Charge (IUC), would continue to weigh down the financial performance of the industry in FY2018 according to ICRA.
According to Mr. Harsh Jagnani, Sector Head & Vice President – Corporate Ratings, ICRA: “There has been a rush in the consolidation activity in the recent past, with deals including the impending merger of Vodafone India and Idea Cellular, merger of consumer mobile business of Tata Teleservices into Bharti Airtel, proposed sale of assets by Reliance Communications Ltd. to RJio, and the acquisition of Telenor India by Bharti Airtel. These transactions, assuming they fructify, herald the emergence of an oligopolistic industry structure with larger and relatively stronger players. In addition, the industry has seen a consistently increasing data usage pattern which should give some price-inelasticity.”
Alongside some major setbacks, there are some silver linings as well, namely expedited consolidation and increased data stickiness. “These factors would lead to gradual restoration in pricing power of the remaining telcos, which should translate into improvement in financial position in FY2019,” added the report.
However, ICRA believes that the concerns would, however, remain the near term despite the long-terms upsides as the competitive intensity is unlikely to abate. Telecom operators such as Bharti Airtel and others will continue to seek higher market share, especially from the smaller/existing ones, to achieve improved visibility of returns.
Furthermore, it added that the FY2018 revenue is estimated to decline by 13 percent and EBITDA to decline by 34 percent. After that, benefits of consolidation, restoration of pricing power, and increased data usage are expected to result in a steady improvement from FY2019.
For FY2019, ICRA expects the industry revenue to increase by 10 percent and EBITDA to increase by 42 percent, although it will still be lower than FY2017 levels. The industry debt levels, estimated at Rs. 4.7 lakh crore as on March 2018 are expected to reduce to Rs. 4.2 lakh crore as on March 2019, with monetization of tower assets and promoter support being main drivers. Nevertheless, the debt protection metrics will continue to remain weak – estimated debt/EBITDA of 7.2x as of March 31, 2019, predicts ICRA. – Telecom Talk