Telcos' operating profit likely to grow 12-14 pc this fiscal on data surge: Crisil Ratings

New Delhi, Aug 18 (PTI) The operating profit of telecom companies in India is expected to grow 12-14 per cent to about Rs 1.55 lakh crore this fiscal, driven by more data consumption and rise in average revenue per user, Crisil Ratings said on Monday.

The "robust" operating performance, along with declining capital expenditure intensity of leading players post 5G rollout, is seen improving free cash flow, supporting credit profiles of leading players in the industry.

The telecom industry benefits from high operating leverage, Crisil Ratings said adding that its analysis suggests that every Re 1 increase in ARPU adds Rs 850-950 crore to the industry's operating profit.

"Operating profit (Ebitdar or Earnings before interest, taxes, depreciation, amortisation and payment of lease rentals) of India’s telecom companies will grow a strong 12-14 per cent to about Rs 1.55 lakh crore this fiscal, driven by surging data consumption and a consequent increase in the average revenue per user (ARPU)," Crisil Ratings said in a release.

The analysis of three telcos, with about 93 per cent of subscriber market share, indicates as much, it added.

The operating profit metrics last fiscal, grew at about 17 per cent, lifted predominantly due to tariff hikes.

This fiscal, however, the growth will be supported by strong intrinsic factors, as per Crisil Ratings.

ARPU is expected to climb to Rs 220-225 this fiscal from Rs 205 last fiscal, largely on account of rising data consumption, according to Anand Kulkarni, Director of Crisil Ratings.

"Wider availability of 5G network, with penetration expected to touch 45–47 per cent by March 2026 from about 35 per cent as of March 2025, is fuelling data consumption for applications such as social media, video streaming, gaming, generative artificial intelligence and digital marketing," Kulkarni said.

The data usage is expected to increase to 31-32 GB in FY26 from about 27 GB in the previous fiscal.

"Additionally, the Indian telcos have been rebalancing their offerings by reducing plans with low data limit or offering 5G services only on plans offering higher data limit. This trend is expected to move consumers to premium plans, boosting telco ARPU," Kulkarni added.

With rising demand for data-driven services, telcos have introduced premium plans that bundle over-the-top (OTT) services, a strategy that also helps telcos upselling and raise their ARPUs.

Moreover, internet penetration in rural and semi-urban areas is expected to increase by 4-5 per cent rising to 82 per cent by fiscal 2026.

Users shifting from voice-only plans to data plans will further boost ARPU. Typically, a voice-only plan with validity of 28 days is priced about Rs 100 lower than an entry level data plan of the same validity.

Increase in ARPU results in surge in operating profit, given that about 60 per cent of the overall cost of telcos are fixed in nature, Crisil Ratings explained.

"Thus, telecom industry benefits from high operating leverage and our analysis suggests that every Re 1 increase in ARPU adds Rs 850-950 crore to the industry Ebitdar," it said.

The expansion in operating profit will also improve free cash flow because of lower capex requirements.

Nitin Bansal, Associate Director, Crisil Ratings noted that capex intensity, at 31 per cent average over the past two fiscals, is expected to moderate to 24-26 per cent this fiscal as a large part of 5G network rollout has been completed by the leading telcos.

Further, most of the spectrum purchase was completed in fiscal 2023 and next significant spectrum renewal are due in 2030.

"This will result in healthy operating free cash flow of around Rs 70,000 crore this fiscal, a large part of which will likely be utilised for debt reduction," Bansal said.

As a result, net leverage is estimated at about 2.7 times this fiscal, a cool off from 3.4 times in fiscal 2025.

"This augurs well for the credit profiles, especially for the leading telcos," Bansal added.

Crisil Ratings' assessment does not factor in any tariff hike this fiscal and the release added that any tariff hike will have an upside for ARPU, resulting in further improvement in free cash flows this fiscal and the next. PTI MBI ANU