Millennium Post

'Tariff hikes can double telcos operating profit in FY21'

Mumbai: The steep tariff hikes, effected earlier this month by the battered telcos which held prices at rock bottom levels for nearly five years, can help more than double their operating profit to Rs 60,570 crore in FY21 from Rs 29,450 crore in FY19, says a report.

It is a "structural positive" for the sector which has been weighed down by weak cash flows and mounting debt levels, leading domestic ratings agency Crisil said on Monday, adding the hikes are a good opportunity for the industry to "repair its financials and become sustainable".

In the aftermath of the adjusted gross revenue order by the Supreme Court that favoured the government view, all the major telcos hiked subscriber tariffs by up to 40 percent, starting with the prepaid customers.

The Supreme Court order on the AGR puts a burden of Rs 1.47 lakh crore on the industry that has been bleeding for years and sitting on a debt pile of close to Rs 4 lakh crore.

"The crucial part now is pricing discipline and extent of down-trading from current plans to cheaper ones by subscribers. That will determine the kind of net gains that telcos will make in the near-term," said Sachin Gupta, a senior director at Crisil.

The industry's debt to operating profit ratio will come down to 4.6 times from the present 7.5 times, if the operating profit improvements indeed happen as expected, the agency said, adding the top three players presently owe Rs 3.3 lakh crore to the system.

The average revenue per user, arguably the most widely tracked number by analysts, will go up by 25 percent following the price hikes to Rs 145 next fiscal from Rs 116 earlier, the agency said.

It said 80 percent of the additional revenue will flow straight into the operating profit given the high operating leverage at which the companies operate.

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