How Bharti Airtel Battled Debt, Rivals In 2019-20, As Per Its Annual Report

India’s second-largest mobile operator’s net debt rose in the year ended March even as it managed to raise $8 billion.

Bharti Airtel Ltd.’s net debt, according to its annual report for 2019-20, including lease obligations rose to Rs 1.18 lakh crore compared with nearly Rs 1.13 lakh crore a year ago. Excluding the obligations, its debt stood at Rs 88,251.2 crore.

The Sunil Bharti Mittal-founded company raised Rs 24,939 crore through a rights issue in 2019-20, concluded an initial public offering for its African arm by raising $674 million in net proceeds. That apart, it raised $1 billion through 5.65% subordinated perpetual securities through its subsidiary Network i2i Ltd. and raised $2 billion via qualified institutional placement and $1 billion in foreign currency convertible bonds in January this year.

The mobile operator changed its policy on cost of customer acquisition during the year. The group, excluding Airtel Africa and its subsidiaries, has estimated historical average customer life at more than 12 months and based on the churn rate it has started deferring costs prospectively. The resultant financial impact led to an increase in profit before tax of Rs 1,213.2 crore in the last fiscal.

The company is under litigation with the Department of Telecommunications in the Supreme Court over adjusted gross revenue dues. The apex court is hearing petitions on timeline for payments of the dues and has made it clear that the dues won’t be reassessed.

Sunil Mittal hoped that the litigation gets resolved soon.

“I hope the government will look into the urgent needs of the operators. Though the recent tariff increase has provided some cushion to the industry, we’re still way below the levels to make the industry viable,” Mittal was quoted as saying in the annual report. “The government must also look at rationalising levies on the sector and close longstanding legal disputes that are a big drag on performance of operators.”

The company expects fierce competition in the 4G space.

“Competition for 4G share is seen through a high push for device upgrades by operators, in order to retain maximum customers on their 4G networks,” the report said. “This may give rise to subsidies for new 4G device purchase on top-selling smartphone brands, which would sustain or get more aggressive.”

Bharti Airtel expects increase in cost structures ahead of revenues which may impact liquidity. “With the entry of new operator, market pricing has been dampened putting pressure on margins and cash flows thereby leading to increased debt (leverage).”

Debt levels, the company said, will continue to remain heightened as it will have to “increase investment in its network to ensure quality of service, continued spends on distribution and maintaining world-class customer service”.

Investment In 5G

The company is collaborating with original equipment manufacturers and application developers and conceptualising 5G trials. It said proposed investments in the current networks will deliver best-in-class connectivity to Airtel consumers, laying a strong foundation for 5G services in the near future.