‘10% hike in tariffs could cut losses of telcos by 60%’

New Delhi, Nov 22 (SocialNews.XYZ) Deferment of spectrum dues and possible tariff hikes are a positive but AGR overhang remains and a 10 per cent hike in tariffs could bring down their losses by 30-60 per cent, Vipula Sharma, Director - Ratings, Brickwork Ratings has said.

Deferment of spectrum dues and possible tariff hikes a positive but AGR overhang remains. While the exact impact of the same on these companies' profit ability will depend on the quantum of hike in tariffs, even a 10 per cent hike in tariffs could bring down their losses by 30-60 per cent, he pointed out.

Finance Minister Nirmala Sitharaman on Wednesday announced that the Cabinet has approved deferment of the spectrum dues for FY21 and FY22, although the interest as stipulated in the terms of assignment will be charged as it is.

This announcement is expected to improve the cash flows for the telecom players but it will not have net benefit on their balance sheet as they have to pay the fees along with interest charges after two years. For two large telecom players, the stress on the immediate liquidity will ease to the extent of nearly Rs 42,000 crore.

However, it is unlikely to have an impact on the overall sector's financial health as the leverage on balance sheet is expected to continue to remain high, Sharma said. Though this is a positive step for the sector, there is still no clarity whether there will be any relief on the adjusted gross revenue (AGR) front.

This ruling resulted in an additional liability of more than Rs 1.30 lakh crore for a sector already saddled with a debt of above Rs 4 lakh crore. Relief on this front will be key to the financial health of the telecom players, he added.

Moreover, the announcement of the proposed tariff hikes by all the players is a credit positive for the sector especially for Bharti Airtel and Vodafone Idea. While the exact impact of the same on these companies' profitability will depend on the quantum of hike in tariffs, even a 10 per cent hike in tariffs could bring down their losses by 30 60 per cent.

Nevertheless, the move indicates that the government has taken cognisance of the dire situation and may come up with more measures in the future to maintain viability as well as healthy competition in the sector, Sharma added.

Source: IANS