Telecom's average cost of equity falls to 14 percent says EY survey

Commensurate with the fall in interest rates over three years, the average cost of equity for the Indian telecom sector in 2017 is around 14 percent, an EY survey said here on Thursday. It is a drop from 15.8 percent cost of equity recorded for the sector in the previous survey in 2014, the survey said.

"EY - Cost of Capital - India Survey 2017 has provided an overall snapshot on the current trends, levels and best practices relating to this important financial parameter. Our endeavour now is to analyse each sector in detail, both on a temporal basis, and in comparison to other sectors, to provide meaningful data points to the finance practitioners in each sector," said Navin Vohra, Partner and Leader - Valuations and Business Modelling, EY.

The survey also highlighted that the quantum of alpha adjustments made by companies in the sector, that is, adjustments to the discount rate to take into account additional risks, appears to have increased since the previous survey.

A significant portion of these adjustments was made to take into consideration the changes in the competitive landscape and regulatory challenges, it added. The cost of capital survey India 2017 is focused on understanding the threshold cost of equity that India Inc. used for its capital allocation and investment decisions and the process by which practising finance professionals in the industry make capital costing decisions.

The survey pointed out that all the respondents in the current survey believe that the long-term stable growth rate for the telecom sector is in the range of 2 percent to 4 percent, which is lower than the overall average across other sectors.

Additionally, 80 percent of telecom respondents use a forecast period of 10 years for project evaluation, as against the preference of using up to a 5 year forecast period among the non-telecom respondents, the survey said.

The survey results for the telecom sector covered response sets from finance professionals in companies across the telecom sector and had representation from listed, unlisted, domestic and multinational companies.


Published Date: Jun 01, 2017 05:21 pm | Updated Date: Jun 01, 2017 05:21 pm