Indian telecom sector poised for next phase of market recovery: S&P Global Ratings

Indian telecom sector poised for next phase of market recovery: S&P Global Ratings

New Delhi, July 11: India’s telecom sector appears poised for the next phase of market recovery as the sector moves towards a more stable three-player market, a report showed on Thursday.

Increasing stability in the sector will boost profits and strengthen credit metrics, according to a report from S&P Global Ratings.

“We believe entities will seize the opportunity to put a much-needed focus on improving earnings and balance sheets. Investors are likely to remain willing to generously fund the three largest players,” the report said.

Vodafone Idea’s recent capital raising has increased the company’s viability.

“We expect the two largest entities – Bharti Airtel and Reliance Jio Infocomm – to now focus less on increasing market share and more on improving earnings and balance sheets,” the report said.

Telecom companies have managed to increase their average revenue per user (ARPU) over the past three years.

According to industry experts, the latest round of tariff hikes of 15-20 percent on prepaid and postpaid plans by telecom service providers (TSPs) could result in an additional operating profit of around Rs 20,000 crore for the sector if these hikes are fully absorbed.

S&P Global Ratings expects ARPUs to grow faster, after a slowdown over the past 12-24 months.

However, the gains are mainly the result of rate increases and an increasing demand for fast data.

“That said, in an industry marked by intense competition, high spectrum costs and unexpected regulatory shifts, an issuer’s financial buffer will remain critical to its long-term viability,” the report said.

A stabilized market with three players is likely to increase profits.

“We believe Bharti Airtel and Reliance Jio can now focus on improving returns. This would be a shift from their earlier stance of market share gains,” the report said.