Telecom sector debt levels to reach Rs 4.8 lakh crore in FY18
The telecom sector debt crisis is expected to widen in FY18 on the back of negative cash flows and weaker earnings.
The telecom sector that is reeling under heavy debt is expected to increase its debt levels to Rs 4.8 lakh crore this fiscal.
“Industry debt estimated at Rs 4.6 lakh crore in FY2017, expected to bulge to Rs 4.8 lakh crore in FY2018,” ICRA analyst Harsh Jagnani said in a webinar on June 29.
Telecom operators too are buckling under the pressure of a heavy debt burden. Just last month Reliance Communication was downgraded by several rating agencies on asking to restructure its Rs 45,000 crore debt.
Tata Teleservices, the telecom unit of Tata Group also asked to restructure debt of Rs 32,000 crore and has also asked for a fresh loan of Rs 5000 crore.
“In FY18, credit profile of telecom sector is likely to deteriorate due to negative free cash flows amid weaker earnings leading to a rise in debt levels. However, we could see companies in this sector to monetize some of their non-core assets which could ease pressure on their credit profile,” Priyanka Poddar, Senior Analysts at India Ratings told Zeebiz.
The main reason that ICRA cited for this was spectrum related expenditure in the last few years.
“Major addition in the spectrum related debt post the auctions of February 2014, March 2015 and October 2016,” ICRA said.
“While spectrum debt has increased to Rs 1.8 lakh crore, non-spectrum debt has largely remained stable at Rs 2.8 lakh crore for FY2017, including Rs 1.1 lakh crore of bank debt,” the ICRA report said.
However ICRA said that the non-spectrum debt is expected to increase further in FY18.
“For FY2018, non-spectrum debt is expected at Rs. 3.1 lakh crore while the spectrum debt is expected to be around Rs. 1.7 lakh crore. Repayment burden for spectrum debt – Rs 25,300 crore p.a. for the next two years and Rs 31,700 crore post that,” ICRA added.
Last year the telecom industry ranked fourth in the matter of debt of top corporate borrowers, right behind metal and mining, infrastructure and power.
“Eight sectors account for 75% of total consolidated debt of top 500 corporate borrowers. Telecom ranks 4th with total debt contribution of 12%-15%,” Poddar said.
Telecom operators earning is expected to be under pressure as competitive pricing due to Reliance Jio impacted the pricing power of the companies.
The revenue per user earned by the operators have declined since the entry of Jio. India’s telecom major, Airtel’s ARPU was down from Rs 202 in Q1FY15 to Rs 158 in Q4FY17.
“Competition has impacted the revenue generation and profitability of all the players in H2 FY2017, post the RJio launch. ICRA estimates the FY2018 revenue and EBITDA to decline by 6% and 28% respectively,” Jagnani added.
With the boost of freebies and bumper offers on data offered by the companies in FY17, voice and data realisations also declined.
With the Goods and Service Tax rolled out taxes on the sector have increased from an earlier rate of 15% to 18% under GST. However, the telcos are expected to absorb higher tax incidence so as not to burden the subscriber base.
“While the pre-paid subscribers would get lower usage value from fixed denomination packs, the tax burden on post-paid subscribers would increase. However, with regard to full talk-time pre-paid vouchers, the higher tax incidence would have to be absorbed by the telcos leading to some additional pressure on their cash flows,” ICRA report said.
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