1. Reliance Jio impact to linger on telecom sector; pretax net to fall 28 pct this fiscal: Icra

Reliance Jio impact to linger on telecom sector; pretax net to fall 28 pct this fiscal: Icra

Domestic rating agency Icra on Thursday estimated an additional 6 per cent drop in growth along with a massive 28 percent drop in pre-tax profit this financial year.

By: | Updated: June 29, 2017 10:31 PM
Reliance Jio impact, telecom sector, pretax net, Icra, economy Domestic rating agency Icra on Thursday estimated an additional 6 per cent drop in growth along with a massive 28 percent drop in pre-tax profit this financial year. (PTI)

Domestic rating agency Icra on Thursday estimated an additional 6 per cent drop in growth along with a massive 28 percent drop in pre-tax profit this financial year. This estimation is over and above the 5 per cent decline in revenue to Rs 2.56 trillion in FY17, which pulled down their pre-tax profit by 10 per cent to Rs 64,000 crore, according to PTI. Agency’s sector head Harsh Jagnani said, “Competition has impacted revenue generation and profitability of all the players in H2 of FY2017, after Rjio launch…we have a negative outlook on the sector.” Jagnani without directly commenting on whether banks should expect any stress, said that debt servicing will be an issue with the liquidity gap widening to Rs 70,000 crore.

Even as the RBI has asked banks to increase provisions on telco exposures fearing asset quality issues, Icra said the total debt of the sector will grow by Rs 20,000 crore to Rs 4.8 trillion by next March. Banks have an exposure of Rs 1.1 trillion to the sector, as the rest of the debt is foreign currency-denominated and domestic corporate bonds.

By taking into account the entire inflows and outflows, the gap is calculated. While it also estimates that with the fall in pretax profits and rise in debt levels, there will be a deterioration in gross-debt to pretax profit ratio to over 10 times as of March 2018.

Meanwhile, Jagnani also said the rollout of goods and services tax (GST) is a negative for the sector but is not the biggest of the worries. The ongoing consolidation in the sector will help operators regain some pricing power which is waning at present, he said, adding this will not happen till the mid of 2018.

  1. A
    Apte
    Jun 30, 2017 at 7:06 am
    1. Yes, next few years will be difficult years for telecom companies. 2. Entry of Reliance Jio (R-Jio) in the telecom services sector about nine months ago has begun process of consolidation. Airtel’s takeover of Telenor India and merger of Reliance Communications and Aircel, are two mergers which have became inevitable after R-Jio’s entry. Two other companies Vodafone and Idea have also decided to merge and that will happen in a couple of years. 3. Before R-Jio’s arrival top three Telecom companies (Airtel, Vodafone Idea) were dictating terms to customers but after R-Jio’s entry scenario in the telecom services market has changed. There are many positive changes in the telecom services market, and all service providers are vying to retain market share by making offers of compe ive tariff packages. Even the government-owned BSNL is making attractive offers. 4. All telecom service providers, R-Jio included, have to increase productivity, cut costs and also widen the customer base.
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