Crisil Sees Indian Telecom User Revenue Rising 25% By FY26

Indian telecom firms are expected to generate greater revenue per user, aided by tariff adjustments and escalating data consumption, Crisil said. 

The average revenue per user—or the key metric for profitability for telecom firms—per month is expected to rise by nearly a fourth in the next financial year from FY24 levels, the rating agency said in a statement.

This, coupled with reduced capital expenditure amid lower network investments after the rollout of 5G and limited spectrum renewals, is expected to boost return on capital employed and facilitate industry deleveraging, enhancing credit profiles, it said. 

“The industry ARPU should dial up to a decadal high of Rs 225–230 by the end of the next fiscal compared with Rs 182 last fiscal,” Manish Gupta, senior director and deputy chief ratings officer at Crisil Ratings, said in the statement.

Gupta said customers have been upgrading their plans amid rising content consumption because of video streaming, social media and online gaming, resulting in higher ARPUs.

The growth in ARPU will unfold gradually over the next two fiscals as the impact of tariff increases takes effect upon the next recharge cycle for long-term plans.

This hike is expected to bolster operating profitability, raising the industry's return on capital employed to approximately 11% in the next fiscal, up from about 7.5% expected in this fiscal, Crisil said. The telecom sector has endured a prolonged period of subdued returns on capital, primarily due to substantial investments made in deploying each new generation of technology and meeting spectrum obligations.

Capital expenditure, which averaged 28% over the past three fiscals, is expected to drop to 19% in the upcoming fiscal as most telecom operators finish their 5G rollouts, according to the rating agency. While investments in network upgrades like fiberisation, base transceiver stations, and small cells will continue, Crisil expects them to proceed at a slower pace.

Similarly, spending on new spectrum acquisitions is likely to decline following major purchases in fiscal 2023, the report said. Crisil also doesn't expect significant spectrum renewal until 2030.

This trend, according to the rating agency, was evident in the June 2024 auction, where bids totaled Rs 11,341 crore, representing 12% of the available airwaves, with nearly half of that amount allocated to spectrum renewals.

“The moderation in capex as well as healthy profitability will enable telcos to pare their debt to Rs 5.6 lakh crore next fiscal from peak debt of Rs 6.4 lakh crore in fiscal 2024,” said Anand Kulkarni, director of Crisil Ratings.

He said debt reduction will help the industry improve its debt-to-Ebitda ratio to less than three times in the next fiscal, from 4.2 in this fiscal.