Rising data use, higher ARPU to lift telecos' operating profit by 12-14% this fiscal: Crisil Ratings

India’s telecom companies are expected to post a healthy 12-14% growth in operating profit to around ₹1.55 lakh crore this fiscal, aided by rising data consumption and an increase in average revenue per user (ARPU), according to Crisil Ratings.

The “robust” operating performance, coupled with moderating capital expenditure intensity after the completion of 5G rollout, will improve free cash flows and strengthen the credit profiles of leading players, the rating agency said in a report on Monday.

An analysis of three large telcos, which account for about 93% of subscriber market share, formed the basis of the assessment.

“ARPU is expected to climb to ₹220-225 this fiscal from ₹205 last fiscal, largely on account of rising data consumption. Wider availability of 5G network, with penetration expected to touch 45-47% by March 2026 from around 35% as of March 2025, is fuelling data consumption,” said Anand Kulkarni, Director, Crisil Ratings.

Data usage per subscriber per month is projected to rise to 31-32 GB this fiscal from about 27 GB last year, led by applications such as social media, video streaming, gaming, generative artificial intelligence and digital marketing, the report added.

Telcos have also been pushing premium plans by reducing low-data packs and bundling over-the-top (OTT) services with higher-end offerings, a strategy that also helps telcos upsell and raise their ARPUs.

Internet penetration in rural and semi-urban areas is also expected to rise by 4-5% to 82% by FY26, with users shifting from voice-only to data plans.

Crisil noted that since about 60% of telecom companies’ costs are fixed, higher ARPU directly translates into stronger margins.

"Thus, telecom industry benefits from high operating leverage and our analysis suggests that every Re 1 increase in ARPU adds ₹850-950 crore to the industry Ebitdar," it said.

On the expenditure side, capital intensity, which averaged 31% over the past two fiscals, is likely to ease to 24-26% this year as major 5G rollout investments and spectrum purchases have already been made.

“This will result in healthy operating free cash flow of around ₹70,000 crore this fiscal, a large part of which will likely be utilised for debt reduction. Resultantly, net leverage is estimated at ~2.7 times this fiscal, down from 3.4 times in fiscal 2025. This augurs well for the credit profiles, especially for the leading telcos,” said Nitin Bansal, Associate Director, Crisil Ratings.

The agency clarified that its assessment does not assume any tariff hike this fiscal. A tariff increase, if announced, would provide further upside to ARPU and free cash flows.