Telco revenue growth to moderate in 2022 after a pandemic-fuelled acceleration: Fitch

• Warns SLT’s ability to meet its capex plans could be at risk, if country’s external finances weaken further, increasing import restrictions 

The telecommunication services providers became the immediate winners during the last two years, when the pandemic pushed the economic activities online and forced people to shelter-in-place. 

However, according Fitch Ratings, some of that momentum could moderate in 2022, after recording a robust growth in the previous two years, largely underpinned by the pandemic-fuelled distant 
economic activities.

The rating agency estimated the industry revenue growth to ease somewhat to between 8 to 9 percent in the incumbent year, compared to an estimated 12 to 13 percent growth in 2021, backed by strong growth in data, fixed broadband and digital TV. 

Despite the people and economies gradually emerge out of the pandemic-induced remote working and learning activities, there will be greater flexibility between in-person and virtual activities in the post-pandemic world. As the fourth quarter earnings season is just getting underway, analysts are awaiting for some strong earnings report cards from companies and particularly the telcos. 

However, just because there could be some moderation in the top lines, it doesn’t mean that the telcos can trim their capital expenditure budgets. 

“Average 2022 capex/revenue should increase to about 26 percent (2021F: 24 percent) as the telcos expand 4G coverage and fibre connectivity,” Fitch Ratings said in a rating report released on Thursday on Sri Lanka Telecom PLC (SLT). 

Fitch affirmed SLT’s National Long-Term Ratings at AA-, with a Stable outlook but said its rating is largely constrained by the sovereign rating, which was lowered to CCC last month, over the heightened worries over a debt default. 

The Sri Lanka government holds a majority stake in SLT directly and thereby excises significant influence on its operational and financial profile. 

Fitch however cautioned that the company’s “ability to meet its capex plans in a timely manner could be at risk, if the country’s external finances weaken further, increasing import restrictions”. 

“SLT has mitigated this risk with the help of its foreign currency inflows and deposits and supplier credit,” the rating agency added. 

SLT is the largest fixed line operator and second largest mobile service operator via Mobitel in the country and the group could invest around Rs.30 to 31 billion as capex in 2022, on expanding its fibre infrastructure and 4G network coverage.