Telecom revenues may fall 6% this fiscal

The telecom industry's topline is expected to decline 6% to Rs 2.4 lakh crore in FY2018 due to intense competition and pricing pressure.

"Competition has impacted the revenue generation and profitability of all the players in second half of last fiscal. We have estimated FY2018 revenue and Ebitda to decline by 6% and 28% respectively. The Ebitda for FY2018 is estimated at Rs 46,000 crore, translating into modest operating margins of 20%, which presents a high credit risk seeing the debt levels," said Harsh Jagnani, sector head & vice president – corporate ratings, Icra.

The roll out of GST will compound the woes for telecom players as the higher tax incidence would have to be absorbed by them, leading to some additional pressure on cash flows.

The industry debt is likely to rise to Rs 4.8 lakh crore by March 31, 2018, against Rs 4.6 lakh crore in the previous year, the rating firm said.

The pressure on cash flows and constant need for capex pose a challenge towards debt servicing.

"The impact on the telecom industry's financial health was visible in the second half of FY2017 post-RJio's launch. Icra estimates the situation to remain weak during this fiscal as well as the pricing pressures show no signs of abatement," it said.

A heightened competitive intensity and pricing pressures had resulted in the telecom industry's revenue and Ebitda declining by an estimated 5% and 10% respectively during FY2017.

The total industry debt as on March 31, 2017, stood at Rs 4.6 lakh crore. Of the total debt, deferred spectrum debt was Rs 1.8 lakh crore and non-spectrum debt was Rs 2.8 lakh crore which includes estimated bank debt of Rs 1.1 lakh crore. Given the insufficiency of cash flow generation in comparison to repayment obligations and the capex requirements, the industry would need additional funding requirements to the tune of Rs 70,000 crore for FY2018.

The telecom services are expected to get marginally costlier for the entire subscriber base under the goods and services tax (GST) regime as the services would attract GST rate of 18% while the existing service tax is at 15%.
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 telecom firms leading to some additional pressure on their cash flows.

Though, the industry will be able to avail input credit of taxes (VAT on the purchase of goods), which was not available earlier.

Analysis

Ebitda for FY2018 is estimated at Rs 46,000 crore, with 20% operating margins 
The total industry debt as on March 31, 2017, stood at Rs 4.6 lakh crore