The Supreme Court order on the AGR puts a burden of Rs 1.47 lakh crore on the industry that has been bleeding for years and sitting on a debt pile of close to Rs 4 lakh crore.
"The crucial part now is pricing discipline and extent of down-trading from current plans to cheaper ones by subscribers. That will determine the kind of net gains that telcos will make in the near-term," said Sachin Gupta, a senior director at Crisil.
The industry's debt to operating profit ratio will come down to 4.6 times from the present 7.5 times, if the operating profit improvements indeed happen as expected, the agency said, adding the top three players presently owe Rs 3.3 lakh crore to the system.
The average revenue per user, arguably the most widely tracked number by analysts, will go up by 25 percent following the price hikes to Rs 145 next fiscal from Rs 116 earlier, the agency said.
It said 80 percent of the additional revenue will flow straight into the operating profit given the high operating leverage at which the companies operate.
The agency said its analysis shows every Re 1 added to the Arpu adds about Rs 1,000 crore to the industry's operating profit, and going by the same, the overall operating profit will double to Rs 60,570 crore in FY21 from Rs 29,450 crore in FY19.
The tariff hikes would accelerate SIM consolidation and curb subscriber additions, it added.
On the AGR, it said its base-case assumes a payout of Rs 50,000 crore in license fee arrears by the industry.
"Any additional liability will stretch their balance sheets and necessitate fresh equity infusion and support from sponsors to maintain credit profiles," another Crisil director Nitesh Jain said, adding he has not factored in the 5G spends.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.