After a two and a half year of hiatus, the top three telecom players1 (referred as telcos) have implemented up to 20% tariff hikes. These increases can potentially expand the telcos profit before interest lease depreciation and tax (PBILDT) by 20% to 22% in the current fiscal year 2025. This is a structural positive for an industry whose Return on Capital Employed (ROCE) is weighed down by huge investments in 5G roll-out including spectrum purchases.
CareEdge Ratings analysis estimates the revised tariffs will improve the telcos blended average revenue per user (ARPU) by about 15% to ₹ 220 in current fiscal 2025 from around ₹ 191 in the fiscal 2024. Our analysis expects every ₹ 1 increase in ARPU to add about ₹ 1000 crore to the Industry’s PBILDT. With 15% growth in blended ARPU expected, the expected expansion of PBILDT will aid the telcos to deleverage the capital, technology upgrades and in network expansion. The growth in PBILDT expansion factors in net subscriber addition of 2-3% followed fewer consolidations in SIM and adoption of 4G/5G services.
Prasanna Krishnan, Associate Director, CareEdge Ratings, says, “The tariff hikes are expected to increase average revenue per user (ARPU) for the telcos by 15% and thereby PBILDT expand by 20-22%. CareEdge Ratings expects the debt levels to moderate in the current fiscal 2025 and expected to decline going forward with the expected moderation in capex intensity coupled with muted participation in recently concluded June 2024 spectrum auctions. Thereby, the leverage ratio (Debt/PBILDT) of the telcos to improve from 4.35x in fiscal 2024 to 3.8x in fiscal 2025 with the expansion in PBILDT and some moderation in debt level.
Going forward, the extent of downtrading from the existing plans to cheaper ones by the subscriber, migration of subscribers to 4G/5G services, and competitive landscape among the telcos will be a key monitorable.”
