Telecom industry expects moderate revenue growth at 7-9% in FY24 on ARPU slowdown, absence of tariff hikes, says ICRA

The telecom industry is expected to report a moderate revenue growth of around 7-9 per cent in FY2024 over FY2023 owing to muted average revenue per user (ARPU) expansion in the absence of tariff hikes in the near term, said ICRA. As estimated by ICRA earlier, 5G network deployment has picked up pace in the recent past and the telcos have been expanding their 5G services in select pockets. This rollout will entail densification of the network and sizeable deployment of fibre which is likely to increase the capex intensity in the near to medium term. Consequently, the debt levels will remain elevated at around Rs 6.1- Rs 6.2 lakh crore as on March 2024 as against Rs 6.3 lakh crore as on March 31, 2023.

“The three telcos together have achieved almost 75-80 per cent penetration of 4G subscribers (around 800 million 4G subscribers) and thus the upgradation of subscribers has largely plateaued. Moreover, the 5G services launched by the telcos have not been monetised and there are no 5G specific plans, which could otherwise have boosted ARPU levels. These factors, combined with the absence of tariff hikes, are likely to result in a moderation in ARPU growth,” said Ankit Jain, Vice President and Sector Head, Corporate Ratings, ICRA Ltd.

He further added that ICRA is estimating that the industry ARPU will improve to Rs 182-185 for FY2024 from Rs 175 in FY2023. This is expected to lead for the industry to report a YoY revenue growth of 7-9 per cent in FY2024, translating into OPBDITA expansion by 9-11 per cent vis-a-vis FY2023.

Also, industry consolidated revenues are expected at around Rs 2.9- Rs 3.0 lakh crore with OPBDITA of around Rs 1.5- Rs 1.6 lakh crore for FY2024. “The revenue and OPBDITA growth thereafter is anticipated to be led by the next round of tariff hikes and monetisation of 5G services, along with growth in the non-telco business,” said Ankit Jain.

Besides setting 5G network sites, the telecom industry is also increasing spends on fiberisation. According to ICRA, the telecom companies are expected to front load the capex in FY2024 and FY2025 causing the capex intensity to peak during this period and moderate thereafter. “The industry has been upfronting 5G capex and ICRA foresees industry capex at around Rs 70,000 crore for FY2024 within an overall spend of around Rs 3 lakh crore over the next 4-5 years. Accordingly, ICRA expects the total debt levels of the industry to remain unwieldy at around Rs 6.2 lakh crore as on March 31, 2024,” said Ankit Jain.

While the increase in deferred spectrum debt resulted in some moderation in metrics in FY2023, the debt/OPBDITA is subsequently projected to improve to ~4.2x and interest coverage to ~2.9x for FY2024, with further improvement in FY2025, with steady uptick in operating metrics even as the debt levels remain high, he added.

ICRA further said that the next phase of growth might come once more subscribers join the 5G bandwagon, and telcos monetise this by releasing 5G-specific plans. “Parallelly, increasing diversification by way of higher revenue share from enterprise business, digital services, fixed broadband services, cloud services, data centers, etc. is likely to foster future growth,” it said.