ARPU of Indian telcos to rise 8-10% to Rs 190 this year, says CRISIL

The average revenue per user (ARPU) of Indian telecom companies is anticipated to increase by 8 to 10 per cent to Rs 190 this financial year, CRISIL Ratings said in a statement on Monday. The statement further noted that the operating profits for these firms could register a 15 to 17 per cent increase, reaching Rs 1.2 trillion this year, up from Rs 1.04 trillion in FY22.

This projected growth is attributed to higher demand for larger data packs, fuelled by a surge in data consumption.

“Growth is expected to be propelled by an increase in data usage to 23-25 GB per subscriber per month this year, up from 20 GB last year, and a recalibration of tariff plans, leading to elevated operating profitability. At the sector level, operating profit is forecast to rise by 15-17 per cent to Rs 1.2 trillion, despite limited revenue from 5G services,” stated Manish Gupta, senior director and deputy chief rating officer at CRISIL Ratings.

The sector benefits from high operating leverage, as approximately three-quarters of the total cost structure is fixed, meaning any growth in ARPU directly boosts operating profit, the agency added.

Between FY20 and FY23, operating profit nearly doubled, while ARPU increased by a factor of 1.4.

CRISIL also mentioned that the roll-out of 5G services is expected to be gradual, mainly depending on the evolution of use-cases and the rate of 5G handset penetration in India, which is currently low.

“As a result, 4G technology is expected to maintain its dominance for some time,” the agency said.

CRISIL further stated that telecom companies will likely invest around Rs 90,000 crore this year to enhance network infrastructure. This represents an increase from Rs 80,000 crore spent last year, driven by the rising demand for data and the need to improve service quality and customer experience.

The agency highlighted that all major private telecom companies are adequately positioned, having acquired spectrum worth Rs 1.5 trillion in the previous auction. Therefore, the agency anticipates a reduced financial outlay for spectrum purchases in the next auction.

Naveen Vaidyanathan, director at CRISIL Ratings, noted, “Significant spectrum investments last year led to telecom debt (including lease liabilities) climbing to Rs 6.3 trillion as of March 31, 2023, from Rs 4.6 trillion as of March 31, 2022. Investments in 5G could push this number to Rs 6.5 trillion by the end of this financial year. The ratio of debt to Ebitda is expected to be three times this financial year, compared to 3.3 times in the previous financial year.”