Consolidated Cash Flows
Based on ICRA estimates of the participation in the forthcoming spectrum auctions, it is expected that the DoT would generate annual cash flows to the tune of Rs. 25,000-32,000 crore per year for the next 10 years from spectrum payouts. The consolidated spectrum payouts for the industry would be as follows:
It may be noted that one negative development for the industry has been the increase in the percentage of minimum upfront payment for supra-1 GHz spectrum band from the earlier 33 percent to 50 percent. This change has led to an additional cash outflow of Rs. 8000 crore for the industry.
Debt Metrics Likely to Deteriorate Further
Over the last few years, the industry has been impacted by the rising debt levels. According to ICRA's estimates, the consolidated debt levels of the industry as in March 2016 stood at around Rs. 410,000 crore (including debt from Bharti Africa), as against around Rs. 290,000 crore as in March 2014. This increase in debt has been contributed mostly by the increase in debt following spectrum acquisitions, and to some extent, impact of rupee depreciation on foreign currency-denominated debt. Going forward, given the estimated level of participation in the auctions, the industry debt is expected to rise to around Rs. 470,000 crore.
ICRA is of the opinion that the industry would find it challenging to organically deleverage in the medium term. This follows from the debt-servicing and capex requirements of the industry. In ICRA's estimates, after the forthcoming auctions, the gross debt/EBITDA for the industry would increase from the prevailing level of 5.7x– to around 6.3x–. Post the auctions, based on ICRA's estimates of cash inflows in the form of EBITDA generation and free cash, and cash outflows in the form of debt-servicing, CapEx, and spectrum acquisition, the industry would face a deficit of Rs. 63,000 crore. This would require additional debt funding.
The auction participation estimates given above are based on ICRA's expectations. However, there have been instances of aggressive auction participation by the industry in the past. Any repeat of such behaviour in the forthcoming auction would raise the spectrum consideration significantly (given that spectrum worth Rs. 5.67 lakh crore is on offer). Such material increase in the auction payouts would have a commensurate adverse impact on the industry debt metrics.