The credit profiles of telecom companies - Bharti Airtel, Vodafone Idea and Reliance Jio - will remain under strain in the medium term due to the high competitive intensity along with elevated debt levels, despite the likely stabilisation of revenues, and possibly profitability.
According to an India Ratings and Research (Ind-Ra) report, revenue recovery of telcos may happen at a slower pace as the proportion of customers who fall into higher price categories continues to stay below overall subscriber base.
After falling over the last 2.5 years, data tariffs (expressed in terms of GB per user per month) rose 11%-17% during October 2018-February 2019, and has been stable since then.
"The likely recovery in profitability, if any, may not be sufficient to address credit concerns such as high leverage, elevated capex, sustained negative free cash flow, and the imminent need for asset monetisation," the report noted.
"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.
According to the report, telcos would continue to rely on external funding arrangements to support their debt servicing and elevated capex requirements. While Mukesh Ambani's Reliance Jio has spun-off its fiber and tower assets into separate special purpose vehicles (SPVs), Bharti Airtel and Voda Idea have concluded rights issues of Rs 250 billion each.
"The pipeline for asset monetisation remains strong, with the initial public offering of Bharti's Africa business and tower monetisation of Voda-Idea," the report said.
The government of India may auction 4G and 5G spectrum in October 2019, the rating agency quoted media reports as saying. The rating agency warned that any incremental spending for the acquisition of additional spectrum along with investments in 5G technology may further stretch the balance sheets of telcos, 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 a matter of concern, and 5G technology has still not been finalised," it added.
Edited by Chitranjan Kumar