Fitch Retains Bharti Airtel’s Rating At BBB-, Outlook Stable

International rating agency Fitch retained its ratings on Bharti Airtel Ltd. 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 the telecom major’s long-term foreign-currency issuer default rating and senior unsecured rating along with a BBB- rating on the bonds issued by its subsidiary Bharti Airtel International Netherlands.

Fitch said that the rating reflects Bharti Airtel’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 (Airtel) will increase its home market mobile revenue market share to 35-36 percent, on completion of its acquisition of Tata Teleservices, 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 India and Idea Cellular Ltd. happens, Bharti Airtel will be pushed to the Number 2 slot both in terms of revenue and number of subscribers.

“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 percent and 28 percent, respectively, in FY18, from 15 percent and 20 percent, respectively, in FY17.

But it was soon to add that already highly leveraged Bharti has a lower rating headroom, likely to decline further with a leverage of 2.1-2.3x in FY19 from 2x, excluding $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 percent 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 percent, down 100 basis points from FY18 as there is no incremental competition in the mobile segment, it added.