Shorter payment timeframe for AGR dues may impact telecom industry structure

Rating agency ICRA in its latest report has said that the relatively shorter payment timeframe of 10 years that has been granted to telecom companies (telcos) for the payment of adjusted gross revenue (AGR)-related dues will exert additional pressure on the cash flows, necessitate sizeable average revenue per user (ARPU) hike, and may also have a longstanding impact on the industry structure.

ICRA added that it would also leave limited room for network capital expenditure (Capex) and expansion, especially for the relatively weaker player.

Assuming that these payment terms will be implemented on the balance amount to be paid, the report said the telcos will have to shell out an amount of Rs 9,000 crore by March 31, 2021, as an upfront payment, followed by 10 yearly installments of around Rs 12,000 crore at 8 per cent rate of interest, starting from February 2022 till February 2031.

According to the report, the telecom industry, after witnessing a turbulent phase with intense competition and pricing pressures, was on a path to recovery. It also said that the telecom operators announced substantial tariff hikes in December 2019, which along with moderation in Capex intensity and deleveraging initiatives, pointed towards green shoots of recovery in the sector that was likely to result in the growth in cash flow generation.

It noted that 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. It further said that the industry has been burdened with higher debt levels amid consistently higher Capex necessities.