Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and debt programme of Bharti Airtel Limited (BAL). Further, CRISIL Ratings has withdrawn its ratings on the non-convertible debentures and commercial paper programme of erstwhile Telesonic Networks Ltd (TNL) that have been migrated to BAL as the same has already been redeemed. The withdrawal is in line with the rating withdrawal policy of CRISIL Ratings.
The ratings continue to reflect the company’s strong market position and healthy as well as improving operating performance of the domestic mobile and non-mobile segments, diversification across businesses, healthy operations in Africa, strong debt protection metrics and high financial flexibility. These strengths are partially offset by exposure to technological risks.
Operating performance of the company continue to improve sequentially over the past few years, resulting in healthy business as well as financial risk profiles. Consolidated revenue & earnings before interest, tax, depreciation and amortisation (EBITDA; including impact of Ind-AS 116 and excluding other income) grew at CAGR of ~17% and ~24% over fiscals 2020 to 2023 respectively. Growth is largely driven by continued strong growth in India and Africa mobile business (together accounting for over three-fourth of consolidated EBITDA). The company has the highest average revenue per user (ARPU) for India mobile services in the industry, at Rs 193 during the quarter ended March 2023. Rising data usage with adoption of 5G services should continue to drive ARPU over near term leading to further growth in revenues as well as operating profits.
Besides, other business segments such as home as well as enterprise services should also continue to see strong growth momentum, as seen over last few years. BAL also continued to maintain strong EBITDA margins in these businesses. Going forward, business risk profile is therefore expected to be driven by expectation of sustenance of strong operating performance across segments.
Strong financial risk profile is demonstrated from sustenance of net leverage1 at ~3x as of March 31, 2023, despite large dues pertaining to spectrum purchase and adjusted gross revenue led liabilities. Net leverage is expected to improve even further below 2.5x in the near term. BAL is continuously ramping up rollout of 5G services across cities in India, which could result in higher capital expenditure outgo in the near term. However, the capex intensity is expected to gradually come down once mass 5G networks have been established. Moreover, the company is not expected to incur any significant amount for purchasing spectrum in the forthcoming auction in India, although spectrum investment may continue in Africa. Higher-than-expected outgo towards networks layout or on spectrum acquisition which could have bearing on overall financial risk profile will continue to remain key rating sensitivity factor.
1Net leverage is calculated on the basis of gross debt including lease obligations minus cash and equivalents. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BAL’s India, South Asia and Africa operations. This is because BAL has majority ownership (more than 50%) in these entities.
Please refer to Annexure - List of entities consolidated, for details of the entities considered and their analytical treatment for consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong market position and continued improving operating performance of the domestic mobile telephone segment BAL has a healthy subscriber base and revenue market share with a pan-India network. As per the Telecom Regulatory Authority of India, the company had a wireless subscriber base of ~37.1 crore as on April 30, 2023 (market share of 32.4%). Revenue market share (including national and international long distance) was strong at over ~35% for the quarter ended March 2023. Furthermore, BAL has large spectrum holdings of over 2,200 megahertz spread across various bands which fortifies the market position.
Company has already launched 5G services in 3,500+ cities and is expected to cover pan India in this fiscal itself. Moreover, the company continues to steadily increase its 4G customer base that is high ARPU accretive. As on March 31, 2023, 4G subscribers stood at 22.4 crore, indicating year-on-year growth of ~11.6%. It continues to sustain the highest ARPU for India mobile services in the industry over last few years. It is expected to continue to improve led by rising data usage as 5G adoption would gain pace, thereby aiding cash flow generation over the medium term. Same would continue to be monitored.
Healthy and diversified operations in African and non-mobile businesses in India The consistent improvement in Africa operations is demonstrated by increase in revenue on account of rising ARPUs and increasing subscriber base. In fiscal 2023, the operating profit of the African business improved by ~20% while operating margin remained flattish. However, the margins have improved by ~ 470 bps over last three fiscals.
CRISIL Ratings takes note of the development with regards to changes to the operations in the Nigerian Foreign Exchange Market in June 2023 that has led to devaluation of naira against USD. This is believed to have bearing on operating profits of group’s African business in USD terms in fiscal 2024. However, the fundamental growth is expected to continue to drive overall cash accruals from African businesses over medium term.
Operating performance of other non-mobility businesses in India — home broadband and Airtel business services — has also remained strong with a healthy EBITDA margin at ~50.6% and ~39.7% respectively, in fiscal 2023, despite rising competition. This, along with improvement in the mobile business in India, shall continue to generate strong cash accrual.
Healthy financial risk profile aided by strong debt protection metrics and financial flexibilities BAL has acquired 19,867.8-megahertz spectrum for a total consideration of Rs 43,084 crore in the last spectrum auction which concluded on August 1, 2022. Despite additional spectrum liabilities, its financial risk profile remained healthy being aided by improving operating performance. This is reflected in the company’s net leverage sustaining at ~3 times as on March 31, 2023, as against ~2.8 times as on March 31, 2022. Adjusted interest cover also stood at ~5 times currently and is expected to improve over medium term.
Moreover, diversification across businesses and strong reputation of promoters enhance financial flexibility. The company has a track record of raising significant funds at competitive rates in the domestic and overseas markets. Besides, management has also demonstrated its financial flexibilities by raising significant equity over past few years.
Weakness: Exposure to regulatory and technological risks Regulatory and policy changes play a central role in defining the risk characteristics of the Indian telecom sector. Presence in multiple geographies exposes BAL to international regulatory risks as well. In Africa alone, operations are spread across 14 markets, with the top five countries accounting for about 2/3rd of the total revenue. Each market has its own regulatory environment and distinct consumer behavior patterns which could have bearing on company’s business as well as financial risk profiles.
The telecom sector also remains susceptible to technological changes. New technology in the telecom sector could necessitate fresh investments or overhaul of existing networks. For instance, with the launch of 5G services, players are required to step up capex for laying networks even after incurring significant capex on 4G networks in the recent past. |
Liquidity: Strong Cash and equivalents of around Rs 12,840 crore as on March 31, 2023, were entirely unencumbered. Improving cash accrual and existing liquidity should sufficiently cover debt obligation over the medium term. Capex (including spends on acquiring new spectrum, if any) is likely to continue to remain moderate over the medium term and is expected to be largely funded through internal accrual and liquidity.
Environment, social, and governance (ESG) profileCRISIL Ratings believes that Bharti Airtel Ltd’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The telecom sector is exposed to material impact on the environment owing to higher electricity requirements at data centers and network infrastructure with increasing data consumption. Waste associated with end-of-life network equipment and hardware can pollute land resources as well. Telcos are also exposed to significant regulatory risk, and operational disruption if data security breaches, loss of customer data, and network disruptions occur. Moreover, the systemic importance of telecom services to society and the economy underscores the importance of resilient and accessible network to the widest number of users. Ensuring access to affordable services for all customers is also relevant for companies’ reputation. BAL has continuously focused on mitigating its environmental and social risks.
Key ESG highlights (as of March 2022):
There is growing importance of ESG among investors and lenders. BAL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its moderate share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Business risk profile will continue to benefit from its presence in diversified businesses and a healthy market position in the mobility business in India, while financial risk profile will benefit from expected increase in cash accrual. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company Headquartered in India, BAL is a global communications solutions provider with ~51.8 crore customers in 17 countries across South Asia and Africa as on March 31, 2023. The company ranks among the top three mobile operators globally and its networks cover over two billion people. Airtel is the largest integrated communications solutions provider in India and the second-largest mobile operator in Africa. Airtel's retail portfolio includes high speed 4G/5G mobile broadband, Airtel Xstream Fiber with convergence across linear and on-demand entertainment, streaming services spanning music and video, digital payments and financial services. For enterprise customers, Airtel offers a gamut of solutions that includes secure connectivity, cloud and data centre services, cyber security, IoT, Ad Tech and cloud-based communication. The company had 33.5 crore mobile subscribers in India and ~14 crore in Africa as on March 31, 2023. |
Key Financial Indicators
Note: These numbers are adjusted for the analytical treatment of CRISIL Ratings and may not represent the numbers reported by the company. *Provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be placed ^interchangeable with fund-based and non-fund-based limits
Annexure - Details of Rating Withdrawn
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Annexure - List of Entities Consolidated
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Criteria Details
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