Moody's revises Airtel ratings outlook to 'stable' from 'negative'

KOLKATA: Moody’s Investor Service has affirmed Bharti Airtel’s Ba1 corporate family rating (CFR) and revised the outlook to `stable’ from `negative,’ following clarity around adjusted gross revenue (AGR) dues payment timelines and improved profitability of the Sunil Mittal-led telco’s India mobile services business.

The global ratings agency said Airtel’s core India mobile business has benefited from a combination of reduced competition, steady 4G customer adds and tariff hikes taken last December.

“The ratings affirmation and change in outlook to stable reflect improving profitability at Bharti's core Indian mobile business, because of a moderation in industry competition, an increase in its 4G customer base, and a tariff hike from December 2019,” Annalisa DiChiara, Moody’s senior vice president, said in a media statement Friday.

Staggered payment resolution related to AGR liabilities, she said, “is a positive development,” adding that Airtel’s operating flexibility is improving and that the telco would benefit from a gradual expansion of profitability that provides a buffer against any material deterioration in credit measures and also supports a steady deleveraging.

Moody’s said the staggered AGR payment plan would alleviate pressure on Airtel’s cash flow, which means some of the proceeds Bharti raised earlier this year to fund AGR dues, can instead be applied to debt reduction. “And according to the (Bharti) management, this is already underway.”

Airtel shares closed 1.19 per cent lower at Rs 491.65 on BSE Friday.

Earlier this month, the nation’s top court gave telcos 10 years to pay their balance AGR dues. Airtel pending AGR liabilities are at Rs 25,976 crore.

The telco had reported a consolidated net loss of Rs 15,933 crore in the June quarter, mainly due to one-time expenses related to its AGR dues. But its India mobile services operation continued its recovery, with average revenue per user (ARPU) rising for the fifth straight quarter to Rs 157 even though net 4G user adds slowed down amid the Covid crisis.

Moody’s also affirmed Airtel’s senior unsecured rating and backed the senior unsecured notes issued by Bharti's arm, Bharti Airtel International (Netherlands) B.V.

The ratings agency expects “Airtel’s consolidated Ebitda to gradually rise into the Rs 425 billion range,” which it said, would keep its consolidated leverage -- as measured by debt/EBITDA -- elevated at around 4-4.25x in March 2021. But it pointed out that around 30 per cent-35 per cent of Bharti's reported debt levels are spectrum liabilities which are not exposed to refinancing risks.

Moody's added it could upgrade Bharti's ratings if the telco’s operating performance improves such that its consolidated leverage is sustained below 2.5x,” which needs to be achieved in conjunction with a material expansion in profitability at its core Indian mobile business.

Competition in the Indian mobile segment, the agency said, had eased over the last nine months as price wars following Reliance Jio’s entry four years ago had subsided. But it noted that the pandemic had caused around a 1-2 per cent subscriber contraction over the past few months, which had amplified the impact of a natural attrition of subscribers due to SIM card consolidation following last December’s tariff hikes.

But an increase in the composition of Airtel’s 4G customers, which comprised nearly 50 per cent of its Indian mobile subscriber base in June 2020, is helping to stabilise profitability, Moody’s added.