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Reliance Jio could emerge as telecom market leader in FY20: India Ratings

The outlook for the year explains how, given the continued capex commitments, refinancing requirements would remain high for all the players.

NEW DELHI: Reliance Jio Infocomm could emerge as the biggest telecom operator in fiscal year beginning April 1, a period which is unlikely to see the return of adequate pricing power for the financially stricken industry, said India Ratings and Research.

“RJio’s dominance will increase as it would continue to seize market share in terms of both subscribers and revenue from Bharti Airtel and Vodafone-Idea and eventually emerge as the largest telecom player in the industry,” the research agency has said in its release Thursday.

“The pricing recovery in 2019-20 is unlikely to be sufficient to compensate for the revenue loss witnessed in the preceding two years,” it added, while giving an outlook for the upcoming financial year.

The outlook for the year explains how, given the continued capex commitments, refinancing requirements would remain high for all the players. “As a result, free cash flows would remain negative in 2019-20. The aggregate net debt of Bharti, Voda-Idea and RJio at end-of the current financial year is estimated to be around Rs 3 trillion, implying net leverage of over 6x for the sector,” owing to which, it said the telecom operators will continue to require equity infusion and asset monetisation to deleverage their balance sheets.

The report further says that the focus of operators will eventually shift to average revenue per user (ARPU) from subscriber market share.

“The share of 4G subscribers, who offer higher ARPU, will be a critical profitability indicator and revenue market share will evolve accordingly,” according to the report which also says that revenue growth would be uneven across telcos and RJio is positioned to outperform peers.

The agency also highlighted that overall subscriber growth will remain muted in the next financial year, or it could even witness a decline, as the dual-SIM nature of the market changes to single SIM with ARPUs trudging upwards.

“The ARPU is likely to improve over the second half of the next financial year as the minimum recharge plans launched by Bharti and Voda-Idea will weed out low ARPU customers,” the report explained.

However, the agency feels that 5G spectrum auctions might get a lukewarm response from the sector since the ecosystem for it hadn’t yet taken-off.

“In 2019-20, the industry may not witness active participation in 5G spectrum auctions because of several reasons such as companies having other capex priorities, the immature ecosystem for 5G, and already stretched leverage profiles,” therefore, the report feels any disruption from 5G was unlikely in near term.

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