Rupee depreciation, diesel price hike to erode Rs 6,000 crore from telecom sector

ICRA, a Moody’s Investors Service Company Wednesday said that the Indian rupee depreciation would prove to be a double whammy for the telecom sector, and can increase the cash outgo by nearly Rs 4,000 crore and additional fuel burden of Rs 2,000 crore in 2019 fiscal.

The sector is reeling under the debt of around Rs 5 lakh crore currently, and the incumbents, according to the financial services firm, are expected to face downward pressures on profitability.

“The depreciation in rupee vis-à-vis US dollar during the current fiscal so far, can increase the cash outgo by around Rs 4,000 crore in FY2019 or 7-8% of the estimated industry EBITDA,” Harsh Jagnani, Sector Head & Vice President, Corporate Ratings at ICRA said.

The Gurgaon-based firm, however, estimates the combined impact of rupee depreciation and increase in diesel prices to come to the tune of 10% of FY2019 EBITDA.

Rupee depreciation, according to him, could be a double whammy for the already ailing industry. Not only this would increase the outgo in terms of foreign currency debt repayments and the payments of forex creditors for capex, it will also increase the capex for network rollout and technology upgradation.

“This apart, restatement of total liabilities will result in deterioration in the debt metrics. Moreover, with steep increase in diesel prices, the fuel cost of the telcos is set to go up, primarily related to the tower sites,” Jagnani added

A likely 15% increase in diesel prices is set to have an impact of around 3-4% in the FY2019 estimated industry EBITDA, ICRA ratings executive added.

Out of the total estimated debt of Rs. 4.7 lakh crore as on March 31, 2018, the estimated foreign debt is around Rs. 1 lakh crore with around 70% is estimated to be dollar denominated.

The current debt is, however, in addition to the foreign currency creditors, which are estimated to the tune of Rs. 30,000 crores, taking the total forex exposure of the industry to Rs. 1.3 lakh crore as on March 31, 2018, according to the firm.

The diesel price hike in the recent days would add cost side pressures for the industry.

The total diesel consumption for the industry at the tower sites is around Rs. 13,000 crores and thus a 15% hike in diesel prices, as witnessed in the current fiscal so far, is expected to erode the EBITDA by around Rs 2,000 crore.