It, though, expects countrywide 5G deployments to increase capex intensity for the top telcos in the current fiscal.
“With 5G not being offered at premium pricing, the RoCE for telcos might see limited upside in FY24,” said Ind-Ra, adding that it does not foresee broad-based tariff hikes materialising in the near-to-medium term amid competition.
Bharti Airtel and Reliance Jio are rapidly deploying 5G nationally, having already covered over 500 cities and towns. Vodafone Idea (Vi), the weakest telco, financially, hasn’t yet announced a 5G launch timeline due to pending vendor dues.
Ind-Ra, though, estimates that telco ARPU (average revenue per user) may continue to exhibit organic growth of around 5% on-year in FY24 due to the likely indirect tariff hikes resulting from pricing actions in low-tariff bands leading to subscriber churn, and continued rising composition of data users.
“Jio and Airtel may continue to acquire market share from Vi, especially in the high-ARPU customer base,” the ratings agency said.
The ratings agency, though, said the outlook for the telecom tower industry continues to deteriorate, given the dependency of tower companies on cash-strapped Vi, their rising receivables, and the benefits of 5G rollouts being delayed.Analysts at Crisil had recently said only a third of India’s data users would go 5G by March 2025 while the rest would continue using 4G services two years down the road, given the high cost of 5G devices and low near-term value proposition.
“Continued capex intensity and aggressive dividend payout policies remain additional negatives…Indus Towers has already written off about Rs 5,000 crore of receivables due from Vi (contributing over 40% to its total revenue) in 9MFY23 and has collected only part of the recurring dues from Vi,” Ind-Ra said in a media statement Tuesday.
The ability of Vi to raise funding, it said, remains a key monitorable for tower companies, going forward.
The ratings agency, though, said the outlook for telecom gear makers remains neutral in FY24, due to strong demand drivers (domestic and exports) and a supportive regulatory environment reflected in the production-linked incentive (PLI) scheme.
“With only two to three years since announcement and implementation, while some players have already received PLI benefits for a year, a large portion of the benefit will be received in coming years, which is expected to support their margin profile,” Ind-Ra said.
It, though, said that while the benefit of the PLI scheme has been extended till FY26, the ability of companies availing of these benefits maintaining their margin profile post-FY26 remains to be seen.
