Fitch: Indian telecoms to sustain robust growth

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Fitch: Indian telecoms to sustain robust growth

Fitch: Indian telecoms to sustain robust growth

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Fitch notes the aggressive business plans of some smaller regional telecom companies ('telcos'), but maintains a cautious view of their plans given the entrenched positions and significant lead advantage of the existing national (and near-national) players. Although further rationalisation appears inevitable, the next phase of consolidation may be delayed until cellular growth moderates. Over the medium term, Fitch anticipates the emergence of six operators of scale, namely Bharat Sanchar Nigam Limited ('BSNL'), Bharti Airtel Limited ('Bharti', Issuer Default 'BB+'/Stable), Reliance Communications Limited ('RCL'), Hutchison Essar Limited ('Hutch-Essar'), Idea Cellular and Tata Teleservices Limited ('TTSL').

Fitch says that sustained high growth has demanded heavy network investments over the last two to three years, resulting in most Indian telcos generating negative free cash-flows ('FCF') over this period. The industry has now vaulted into a second capital spending cycle of unprecedented proportions, with aggregate industry capital expenditure expected to approximately double over outlays in FY06. Consequently Fitch expects a general increase in negative FCF levels over the next year or so.

Fitch says key credit drivers over the next 12 to 18 months include effective management of increasing competitive pressures (as evidenced by growth and margin expansion/stability) and judicious capital management as operators ramp up capital spending. Fitch notes that there is also scope for event risk given ongoing consolidation, with negative pressure likely to arise should operators undertake large debt-funded acquisitions.

The report 'Indian Telecoms Sector - Sustainable Growth Ahead' is available on www.fitchratings.com and www.fitchratingsasia.com, Fitch provides an overview of the various industry segments, discusses major issues and analyses industry financials. The report also includes brief credit profiles of the six major Indian telcos, namely BSNL, Mahanagar Telephone Nigam Limited, Videsh Sanchar Nigam Limited, Bharti, RCL, and Hutch-Essar.

Sourced From:  Fitch Ratings