Key Rating Drivers & Detailed Description

Strengths:

Strong operational, financial and managerial support from the parent

Bharti Hexacom accounted for about 8% of BAL’s total subscriber base as of June 2022, as per data from Telecom Regulatory Authority of India (TRAI). The company provides flagship wireless services under the Airtel brand in Rajasthan and the Northeast circles. These circles are key to BAL’s overall business strategy of being a pan-India player. The parent exercises management control over the company and the full integration of operations, including common brand, products, operations and common treasury, strengthens credit risk profile.

Established market position in Rajasthan and Northeast telecom circles and improving operating performance

Bharti Hexacom enjoys a strong market position and has shown resilience against competitive pressures by holding a subscriber market share of ~37% as on June 30, 2022. The market share has in fact improved by ~200 bps over past one year ending June 2022.

Moreover, BHL’s operating performance has significantly improved over last two years, largely on account of improvement in ARPU, customer up-trading and reduction in network operating expenses. In fiscal 2022, the operating profitability improved sharply to 34.5% from 24.5% in fiscal 2021, resulting in healthy cash accruals.

Healthy financial risk profile

Last fiscal, there has been improvement in financial risk profile of the company, aided by healthy cash accruals. Interest cover and gearing ratios have improved to ~4.7 times and ~1.97 times in March 2022 from ~3.3 times and ~3.0 times in March 2021, respectively. Financial risk profile should further improve over the medium term with increase in accruals. Moreover, the company will continue to benefit from financial flexibility arising from strong linkage with BAL.

Weaknesses:

Exposure to regulatory and technological risks

Regulatory and policy changes have played a central role in defining the risk characteristics of the Indian telecom sector, which is structurally dynamic. However, this has moderated with the structural reform measures announced by the Union Cabinet in last year. A four years moratorium provided for AGR dues have eased out cash flow requirements for telcos.

The telecom industry also remains susceptible to technological changes. New technology in the telecom industry necessitates fresh investments or overhaul of existing networks. The advent of 4G, for instance, has seen operators investing substantially in upgrading infrastructure even before they had made significant gains on investments in 3G. Similarly, with the transition to 5G, players may again need to incur significant additional capex even after spending for acquiring spectrum. Higher-than-expected investments having a bearing on financial risk profile will continue to be monitored.

Annexure - Details of Instrument(s)

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