Rating Rationale

Strengths:
* Highly competent and effective board
Airtel has a diversified, well-experienced and competent board of directors, with expertise across global finance, telecommunication, banking, administrative services, technology and consulting. The board provides adequate oversight on the functioning of the management, and participates effectively in making key decisions. The effectiveness of the board is reflected in the fact that Airtel has been able to largely maintain its market share amidst intense competition in the Indian telecom industry over the past three years. Airtel has a subscriber market share of 28.4% as on December 31, 2019, and revenue market share¹of 32.7% as of the quarter ended December 31, 2019.

* Outstanding corporate governance practices
The board has demonstrated exemplary practices in corporate governance, focusing on strategic oversight and business performance, processes, systems, audits, and disclosures, and effective functioning of its various sub-committees. Airtel's board provides strong strategic direction and management oversight aided by the meaningful contribution of the independent directors to the board's functioning. The company has demonstrated commitment to continuously improve its processes in line with the increasing complexity of its businesses.

Another feature of good corporate governance at Airtel is the fact that it has been holding an Independent Directors only session, which is presided by a Lead Independent Director, before every board meeting for more than a decade. This in CRISIL's opinion gives independent directors a platform to identify areas where they need more clarity or information, and enables them to put this openly before the board or management. The independent directors also meet with statutory auditors without presence of the executive management.

* Robust committee functioning
Airtel has an effective committee functioning that ensures high degree of involvement of independent directors in the overall functioning of the committees.

The audit committee comprises majority of independent directors, and has high focus on internal control processes, risk management, and review of related party transactions. Airtel also schedules an audit committee call a week prior to the audit committee meeting, which facilitate detailed discussions on internal audit findings.

The HR and Nomination Committee has put in place a robust framework for performance evaluation of the board, board committees and individual directors. Recommendations arising from the evaluation process are considered by the board to optimise its effectiveness. Institutionalisation of a formal mechanism for evaluation of board performance will further enhance the governance practices at Airtel.

* High disclosure standards compared with listed corporate entities
Airtel adopts the highest standards of disclosures for dissemination of corporate, financial and operational information to all its stakeholders, as is evident from the Management Discussion and Analysis & Report on Corporate Governance sections of its annual report, which are well articulated. The sections carry detailed adequate detail on economic and industry overview, segmental information, risk and mitigation framework entailing relevant action plans to mitigate different risks. Besides, the detailed quarterly report published by Airtel also provides adequate information on the operational and financial parameters for each business segment of the company.

All the information necessary for a shareholder to take informed decision about the operations/ current situation of Airtel is transparently made available to all interested members in the public simultaneously and is easily accessible form on its portal.

* Continued value creation for various stakeholders
In over two decades of operations, Airtel has been optimally creating wealth for its stakeholders. Over the five fiscals through February 2020, the annualised return to Airtel's shareholders stood at 7.97% as compared to Nifty index return of 4.7%. Furthermore, despite industry headwinds, the company has rewarded its equity holders with a cumulative dividend of Rs 3,134 crore (excluding tax on dividends), over fiscals 2018 and 2019.

Airtel's value creation for its debt holders is reflected in its ratings of 'CRISIL AA/Stable/CRISIL A1+' on debt instruments. Instruments with these ratings are considered to have high degree of safety regarding timely servicing of financial obligations.

Airtel also has a track record of its contribution towards corporate social responsibilities (CSR). The company has contributed about Rs 50 crore towards various CSR activities, donations and charities during fiscal 2019. Furthermore, Airtel is continuing to scale up its CSR capabilities on a sustainable basis and is believed to gradually increase its CSR spend going ahead.

Weakness:
* Low value creation for employees
While Airtel is among the largest employers in the telecom sector in India, with 14,818 employees as on March 31, 2019, the attrition rate for the company has increased by about 5% in fiscal 2019, largely owing to the unprecedented challenges and pressure on the telecom industry.

However, CRISIL believes that increased employee engagement and career planning initiatives being taken by the company should help moderate the employee attrition rate going forward.