More Stories

Informist, Thursday, Nov. 28, 2024

--Fitch: Do not see more tariff hikes in short term following rise in July 

--Fitch:Higher spectrum repayments may offset part of 5G-related capex fall 
--Fitch: Bharti Airtel's capex as proportion of total revenue may fall more 
--Fitch: Telecom cos to benefit from sustained improvement in free cash flow 
--Fitch: Higher ARPU will support growth of telecom cos' avg EBITDA margin 
 

MUMBAI – Fitch Ratings Thursday said it does not expect Indian telecom companies to hike tariffs in the short term following a rise in prices in July. Instead, it expects customers' shift from prepaid plans to postpaid plans, and upgrade to higher-priced data plans to drive up the telecom companies' average revenue per user, the rating agency said in a report.

The average revenue per user of Bharti Airtel Ltd. in the September quarter was INR 233, up 14.8% on year and 10.4% sequentially. Reliance Jio Infocomm Ltd., a subsidiary of Reliance Industries Ltd., saw its average revenue per user in the latest quarter increasing 7.4%, both sequentially and on year, to INR 195. The average revenue per user of Vodafone Idea in Jul-Sept was INR 156, up 9.9% on year and 6.8% sequentially. The July tariff hikes would take a couple of quarters of flow through, Centrum Broking had said in a report.

Fitch sees the outlook for Indian telecom companies improving on the back of stronger operating cash generation driven by faster transition to fifth-generation networks and expected deleveraging. The rating agency expects the earnings before interest, taxes, depreciation, and amortisation of Bharti Airtel and Reliance Jio Infocomm to increase 10% in 2025. "This will be driven by an approximately 8% increase in monthly average revenue per user, on higher data consumption," the rating agency said.

Vodafone Idea Ltd. will aim to ramp up its capital expenditure to remain competitive, but its capacity to invest will be contingent on its ability to raise additional capital, Fitch said. The capital expenditure incurred by Bharti Airtel and Reliance Jio, as a proportion of their total revenue, is expected to come down as the two have invested a significant portion into their 5G networks, Fitch said.

Bharti Airtel and Reliance Jio may benefit from sustained improvement in free cash flows due to a growth in EBITDA and moderation in their capital expenditure. However, higher-than-expected capital expenditure may delay a higher free cash flow, the rating agency said. Capital expenditure could increase if the adoption of 5G by their customers is faster than expected by Fitch, which may prompt the telecom companies into increasing the density of their networks. Additionally, capital expenditure could also increase if telecom companies accelerate the rollout of their fibre-to-home products.

Slower growth in average revenue per user is a risk to Fitch's estimates for telecom companies. The growth in this metric could be impaired by an unexpected price war between Bharti Airtel and Reliance Jio, or the government's intervention on tariffs, Fitch said. If the two telecom players seek to opt for mergers and amalgamations which are substantial and debt-funded, it may have a negative impact on their credit metrics, Fitch said.

At 1328 IST, shares of Reliance Industries traded at INR 1,279.65 on the National Stock Exchange, down 1.06%, while those of Bharti Airtel traded at INR 1,565.55 a piece, down 0.77%. Shares of Vodafone Idea traded at INR 8.39, up 0.5%.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Anand J.C.

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.