Credit Agency Moody's says the recent telecom sector reforms would help sustain Telecom businesses in the country and is credit positive for operators, such as Airtel and Jio. It provides support for enabling a 3+1 players structure.
The revision in the AGR definition to exclude non-telecom revenue would boost sectorwide EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) as it would reduce license fees paid by the players. In its latest report, the ratings agency states the moves would help free up cash flow for reinvestment, pave the way for further in next-generation technologies and support a three private plus one state-owned telecome operational structure.
It noted that Bharti Airtel's leverage is improving since the last 12 months backed by better profitability of its core mobile services business in India and capital interventions. "Should Bharti opt for the moratorium on payments for past spectrum purchases and AGR (Adjusted Gross Revenue) statutory fees, we expect this could free up around Rs 120 billion-Rs 130 billion (Rs 12,000-13,000 crore) of cash flow annually, which could be used to reduce debt further," it said.
For Reliance, the report says the abolition of spectrum usage charge (SUC) for spectrum would help make them more profitable. The extension of moratorium on payments would additionally help improve its cash flow generation and further liquidity. "That said, we expect RIL's earnings from its digital services segment to grow over the next 12-18 months on the back of a further ramp up of its home and enterprise broadband services," it wrote.
The ratings agency also said with an increased shift to online transactions and remote working, data consumption would be higher and in turn help telecos spike their earnings and cash flow.