According to a Crisil report, Telecom companies average revenue per user (ARPU) is set to excel by Rs 225 by FY26, the highest in a decade, due to successive tariff hikes by leading private operators. The agency foretell ARPU growth will occur gradually over the current and next calendar years as these hikes take effect in the mainly prepaid market.
Telecom ARPU to Soar 25% to Rs 225 by FY26: Crisil
The growth in ARPU is expected to build up telecom companies credit profiles by boosting profitability and reducing capital expenditure. Crisil’s deputy chief rating officer, Manish Gupta, expressed that ARPU should reach Rs 225-230 by the end of the next calendar year, up from Rs 182 last calendar year. The formation of a new government after general elections, the top three private telcos raised tariffs by up to 20%.
Gupta also noted that the rollout of 5G services has increased data usage, which will further support ARPU growth. Due to higher data consumption from video streaming, social media, and gaming, customers are upgrading their plans. The tariff hikes are anticipated to better the industry’s return on capital employed to 11% by FY26 from 7.5% in FY24, reversing a period of crushing.
Telcos to Slash Capital Expenditure, Reduce Debt
As most telcos have completed their 5G deployments, capital expenditure intensity, or investments relative to revenue, is projected to decrease to 19% in the next calendar year from 28% in FY24. Future efforts will focus on fiberising towers and setting up base receiver stations. Expenditures on new spectrum are also anticipated to decline, with notable purchases already made in FY23 and renewals not due until FY30.
Improved profitability and moderated capital expenditures are anticipated to reduce overall telco debt to Rs 5.6 lakh crore by FY26 from a peak of Rs 6.4 lakh crore in FY24, lowering the debt-to-operating profit ratio to less than 3 by FY26 from 4.3 in FY24. Further tariff hikes could positively impact these projections.
