The operating profitability of the large mobile players rated by CRISIL will improve by 500 basis points (BPS) in the next two years.
The improvement will be driven by reduced intensity in competition, improved pricing power, and increasing revenue from value-added services such as data and 3G.
Higher cash flows from operations, coupled with lower capital expenditure (capex) will enable the telecom majors to reduce their debt and leverage over the medium term, Crisil said in a statement.
However, uncertainties posed by an evolving regulatory framework will remain a key credit monitorable for the sector.
Crisil-rated players hold market shares of around 75 and 60 per cent, respectively, of the revenue and subscriber base in the sector. They account for 70 per cent of the nearly Rs2 lakh crore debt outstanding in the mobile telecom sector at the end of December 2011.
Competitive intensity in the telecom sector began to reduce in mid-2011, as the large players hiked tariffs in select circles. The Supreme Court's recent ruling cancelling 122 2G licenses will further enhance the pricing power of large players.
''We estimate the operating profits of our large rated players to improve by upto 300 BPS, aided by future hikes in tariff. The margins will improve further by upto 200 BPS over the medium term on account of increasing revenue from data, 3G, and other value-added services,'' Pawan Agrawal, director – Crisil Ratings, said.
The contribution of value-added services to revenues is projected to increase to nearly 18 percent from 11 percent currently.
Crisil expects a 30-per cent reduction over the medium term in the average capex of large Crisil-rated players, compared to the capex undertaken in the past three years. This is because most of these players have already achieved high population coverage and have outsourced a large parts of their passive infrastructure requirements.
''The gearing for these players is therefore expected to reduce to less than 1 time by March 31, 2014, from an estimated 1.5 times as on March 31, 2012,'' Agrawal added.
''The regulatory environment, a key element in the assessment of business risk profile, remains uncertain for mobile telecom players. Critical outstanding issues pertain primarily to spectrum pricing and allocation. Any adverse changes in regulations may lead to higher than anticipated cash outflows for players, although the quantum and timing of outflows are still unclear," Sudip Sural, head, Crisil Ratings, said.
Crisil rated telecom players are Bharti Airtel, Idea Cellular, Sistema Shyam Teleservices, Tata Teleservices, Tata Teleservices (Maharashtra), Vodafone India, Vodafone Cellular, Vodafone Digilink, Vodafone East, Vodafone West, Vodafone Mobile Services, Vodafone South and Vodafone Spacetel.
|CRISIL's rated portfolio of telecom sector players|
|Bharti Airtel Ltd. ||CRISIL AAA/Negative/CRISIL A1+|
|Idea Cellular Ltd. ||CRISIL A1+|
|Sistema Shyam Teleservices Ltd. ||CRISIL B+/Rating Watch with Negative Implications|
|Tata Teleservices Ltd. ||CRISIL A/Stable/CRISIL A1|
|Tata Teleservices (Maharashtra) Ltd. ||CRISIL A/Stable/CRISIL A1|
|Vodafone India Ltd. ||CRISIL AA/Stable/CRISIL A1+|
|Vodafone Cellular Ltd ||CRISIL AA/Stable/CRISIL A1+|
|Vodafone Digilink Ltd. ||CRISIL A1+|
|Vodafone East Ltd. ||CRISIL A1+|
|Vodafone West Ltd. ||CRISIL A1+|
|Vodafone Mobile Services Ltd. ||CRISIL AA/Stable/CRISIL A1+|
|Vodafone South Ltd. ||CRISIL AA/Stable/CRISIL A1+|
|Vodafone Spacetel Ltd. ||CRISIL|