Fitch retains Airtel’s ratings at BBB-, outlook stable

International rating agency Fitch today retained its ratings on Bharti Airtel at BBB- along with a stable outlook, citing the unlikelihood of a further drop in tariffs coupled with its rising non-telecom revenue streams.

The agency has a BBB- ratings on Bharti’s long-term foreign-currency issuer default rating (IDR) and senior unsecured rating along with a BBB- ratings on the bonds issued by its subsidiary Bharti Airtel International Netherlands.

It said the rating reflects Bharti’s diversified and integrated business profile, with operations spanning mobile, fixed-line, digital TV, telecom tower and enterprise sectors in the home market along with mobile operations in Sri Lanka and 14 African markets. “Bharti will increase its home market mobile revenue market share to 35-36 per cent, on completion of its acquisition of Tata Tele, despite high competitive intensity,” Fitch said.

The agency, however, was quick to add that “any further increase in competitive intensity could weigh on its ratings, as it has low rating headroom.” It can be noted that once the merger of Vodafone and Idea happens, Bharti will be pushed to the No 2 slot both in terms of revenue and number of subscribers.

“The stable outlook reflects our belief that revenue from Bharti’s home market mobile segment may recover on higher data volume and its African and enterprise business segments will continue to expand. We believe telecom tariff levels in the country are unsustainable in the medium- to long-term in light of the low return on investment for telcos,” Fitch said.

On the solid revenue stream of the company, the report noted that the operating revenue contribution from its African and non-mobile businesses in the home market has steadily increased to 22 per cent and 28 per cent, respectively, in FY18, from 15 per cent and 20 per cent, respectively, in FY17.

But it was soon to add that already highly leveraged Bharti has not only has a lower rating headroom but also it will decline further with a leverage of 2.1-2.3x in FY19 from 2x, excluding USD 6.5 billion deferred spectrum costs in FY18.

Fitch has forecast that both revenue as well as operating profit will remain flat on sustained competition, and ruled out any tariff hikes on the aggressive play by Reliance Jio which will remain aggressively competitive and will prevent any meaningful rise in industry tariffs.

Given this, Bharti’s revenue is likely to increase by 1-2 per cent in FY19, driven by a growth in digital TV, tower and enterprise business segments, the agency said. The operating margin will remain stable at 34-35 per cent, down 100 bps from FY18 as there is no incremental competition in the mobile segment, it added.

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