Tariff Hikes Set to Boost Telcos' Revenues and Improve Credit Profiles by FY26: CRISIL

Major private telecom operators' recent tariff hikes are projected to elevate the average revenue per user (ARPU) to a decadal high of over Rs 225 by FY26. Improved data usage, particularly due to 5G services, will enhance profitability and lower capital expenditure, ultimately reducing overall industry debt.

All major private telecom operators' near-simultaneous tariff hikes are expected to push up telcos' average revenue per user (ARPU) to over Rs 225 by FY26, according to domestic ratings agency Crisil.

Crisil noted that telecom companies' credit profiles will improve due to increased profitability and reduced capital expenditure.

The ARPU, a critical metric for an entity's financial health, is anticipated to rise by 25% in FY26 compared to FY24, Crisil's Deputy Chief Ratings Officer Manish Gupta stated.

Gupta emphasized the role of heightened data usage following the introduction of 5G services in boosting ARPUs.

Post-general elections, the top three private sector telcos increased their tariffs by up to 20%.

The hikes will contribute to an improved return on capital employed of 11% by FY26, up from 7.5% in FY24, covering the predominantly prepaid market incrementally as it becomes effective with the next recharge.

The capex intensity, or investments as a share of revenue, is projected to decrease to 19% in the next fiscal year from 28% in FY24, following significant 5G rollouts and necessary infrastructure adjustments.

With moderated capex and healthy profitability, telcos' overall debt is expected to decline from Rs 6.4 lakh crore in FY24 to Rs 5.6 lakh crore by FY26, noted Anand Kulkarni, Director at Crisil.

If telecom companies initiate further tariff hikes, it will positively impact Crisil's estimates, the agency said.

(With inputs from agencies.)