Relatively Shorter Payment Timeframe for AGR Dues Can Have an Impact on Industry Structure: ICRA

The Supreme Court today announced its judgement on the AGR case and allowed a ten-year payment term with 10% upfront payment for repayment of the AGR dues. For the unaware, the three telcos have t pay Rs 90,000 crore as AGR dues to the government. ICRA opined that the relatively shorter payment timeframe exerts additional pressure on the cash flows and necessitates sizeable ARPU increase and can have an impact on the industry structure. Telecom operators in the country are now looking to increase their ARPU by having another tariff hike in the coming months.

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Indian Telecom Industry Was on a Path to Recovery

The telecom industry, after witnessing a tough phase with intense competition and pricing pressures, was on a path to recovery. In December 2019, all the three telcos- Reliance Jio, Airtel and Vodafone Idea announced tariff hikes. The tariff hikes have led to the restoration of pricing power to the telcos and aided improvement in the operating metrics of the industry with growth in revenues and profit margins. Thanks to the tariff hike, Airtel’s ARPU grew and it continues to grow with every passing quarter.

“The tariff hikes have led to the restoration of pricing power to the telcos and aided improvement in the operating metrics of the industry with growth in revenues and profit margins,” said ICRA in a note.

Over the last few years, the industry has been riddled with elevated debt levels amid consistently high capex requirements. As per ICRA estimates, the debt as on March 31, 2019 stood at Rs 5 lakh crore, which witnessed a decline to Rs 4.4 lakh crore as on March 31, 2020, following the series of deleveraging measures undertook by private operators during FY2020. Moreover, despite the improvement in cash flow and moderation in capex intensity, the debt is further expected to increase to Rs 4.6 lakh crore as on March 31, 2021 owing to addition of AGR dues.