New Delhi: Fitch Rating has affirmed the outlook on Bharti Airtel‘s long-term foreign-currency issuer default rating (IDR) and senior unsecured as stable, affirming its rating at ‘BBB-‘.
The Singapore-based ratings agency has also affirmed Bharti Airtel International (Netherlands) B.V’s senior unsecured guaranteed bonds at ‘BBB-‘, and Network i2i Limited, another Airtel subsidiary’s subordinated perpetual bond, at ‘BB’.
The stable outlook reflects Fitch’s expectations that Bharti Airtel’s diversified cash flow generation will continue to grow and support a solid balance sheet, along with funding high 5G-related capex investments.
Bharti Airtel reported a net profit of Rs 2145.2 crore, up 89% on-year in the second quarter ended September, on the back of strong addition to 4G customers and lower spectrum usage charges.
The agency noted that a strong market position in the growing and fast-consolidating Indian wireless market and integrated operations will continue to support profitability and support high ratings headroom for India’s second largest telco.
Fitch Ratings expects Bharti Airtel’s net debt/EBITDA ratio to improve to 1.1x -1.3x in FY23 and around 1.0x by FY24, from 1.6x in FY22 thanks to strong cash flow generations.
The Sunil Mittal-led telco has the option to raise additional equity of about $1.9 billion during FY23-25 from its undrawn, but fully underwritten rights issue.
The ratings agency also expects Airtel’s EBITDA to grow by around 20% in FY23 around 10-12% in FY24, from 29% in FY22. This will be driven by subscriber and average revenue per user (ARPU) growth in the wireless segment.
Waiver of spectrum charges on spectrum bought in the 5G auction conducted in July will expand the Airtel’s earnings before interest, tax, depreciation and amortization (EBITDA) margin by 100-150 basis points (bps).
“We expect another headline tariff increase in Indian wireless market to boost ARPU in next 12-18 months, following a gradual increase in industry-wide tariffs from a low base,” Fitch Ratings said in the report. Bharti has stated that the industry needs to have monthly ARPU of around Rs200 (USD2.5) in the short term and Rs300 in the medium term.
Airtel’s ARPU in India, from where majority of its profits come in, grew to Rs 190 in the September quarter, helped by a rising proportion of data users.
Fitch though forecast that free cash flow will be limited for Bharti Airtel during FY23-FY24 due to the high 5G-capex cycle. The company expects core capex to remain high at 23-25% over FY23-FY24, while spectrum payments may decline to around 9% of the revenue in FY23 and 6% in FY24.
The agency expects Airtel to invest around $3-4 billion in rolling out 5G networks, much lesser than Reliance Jio, which is likely to invest $13-14 billion, to roll out its standalone 5G network in the next three-four years.
That said, the 5G business case is expected to be limited in the short term. Device ecosystem will also have to increase from the current level of 5% penetration.