Reliance Jio troubles may continue for Airtel and Vodafone-Idea

Reliance Jio's triggered difficulties in the telecom sector will continue, with the sector expected to experience lower sales for the third year in a row, a report said on March 25.

However, a "minor recovery" could be envisaged in the next financial year 2019-2020, according to the report of the national rating agency ICRA Ratings.

The robust competition that followed the launch of Jio continuing and also the value pressure resulted in "a serious deterioration in money performance, marked by lower revenues, lower profitableness (or even losses for some telecommunications operators) and low cash generation, "it said.

After the 11% decrease in revenues in FY 18 by Rs 21 million in FY18, the industry sector is expected to decline further by 7% over the course of FY 19. The agency announced a growth of 6% during the 2020 financial year.

From a profitability point of view, the decline in operating profit is expected to be 18% in FY19 compared to the 21% drop observed in the previous financial year, the agency told, adding that increase is expected to increase by 20% in FY 20.

The 2020 fiscal year can see the benefits of increased data usage and a relatively more consolidated and stable industrial structure, leading to a certain price discipline," said Harsh Jagnani, sector head and vice president.

However, he quickly added that the performance improvement was on a weak base and, despite this increase; it would remain below the peak of the 2016 financial year.

In FY 20, planned deleveraging initiatives of 90,000 to 1lakh crore will strengthen the operators.

The sector's overall debt will decrease to 4.35 lakh crore rupees by the end of the 2020 financial year, compared to 4.75 lakh crore rupees expected in March 2019, it said.

On the basis of the December quarter trends, it indicated that the decline in ARPU (average revenue per user) had been halted and that incumbent operators were looking for upward movement triggers, with some operators implementing plans with minimum recharge.

The government is also likely to lose ground as it will collect non-tax revenues in terms of license fees and spectrum usage charges will decline, the agency said.

ICRA indicated that these two lines of revenue decreased by 24% in FY18 and are expected to decline further in FY19, estimating that non-tax revenues in this sector would be between 35,000 and 40,000 crores per year in fiscal years 19 and 20.