Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the commercial paper of Bharti Telemedia Ltd (Telemedia).

 

The rating continues to reflect the strong market position and well-established brand of Airtel Digital TV (or Airtel d2h) in the direct-to-home (DTH) industry. Financial risk profile is robust, marked by nil debt and healthy cash accrual. Adequate operational, financial and managerial linkages with the parent, Bharti Airtel Ltd (BAL, ‘CRISIL AA+/Positive/CRISIL A1+’), further support the ratings. These strengths are partially offset by exposure to risks inherent in the DTH industry and to regulatory risk.

 

During fiscal 2024, operating revenue of Telemedia has grown by around 3.4%, led by rise of 2.6% in average revenue per user (ARPU) and 0.9% in the average subscriber base. Due to increase in license fee and sales and marketing expenses, the operating margin declined to 55.3% in fiscal 2024, from 58% in fiscal 2023. As the DTH industry is witnessing a declining trend in its net active subscriber base over the last couple of years, addition of subscribers remains a key monitorable.

 

The company continues to be debt-free as on date, but has potential liability towards disputed licence fees, as per the demand raised by the Ministry of Information and Broadcasting over the past few years. The matter is subjudice and Telemedia has made provision of around Rs 3,426 crore (as on March 31, 2024) towards the same. While CRISIL Ratings has not factored in any payout, it will remain a key monitorable.

 

Telemedia also derives strong financial flexibility from its parent, which exercises operational as well as managerial control over it. CRISIL Ratings derives comfort from implicit support of BAL, exemplified by its 100% ownership in Telemedia. Hence, any concern over debt repayment ability of Telemedia will have a large reputational risk on BAL.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of Telemedia and has factored in the parent notch-up criteria to factor operational, managerial and financial linkages with BAL.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position and well-established brand: Telemedia has a strong market position, as reflected in its market share of around 28.45% as on March 31, 2024, as per Telecom Regulatory Authority of India. CRISIL Ratings believes that competition from free dish and other streaming platforms has reduced the net active subscriber base for the DTH industry to 61.97 million in fiscal 2024, from 66.92 million in fiscal 2022 and 70.26 million in fiscal 2020. However, Telemedia could retain and improve its market position to 28.45% in fiscal 2024, from 26.24% in fiscal 2022, and 23.65% in fiscal 2020. In fiscal 2024, it was the only player to increase its market share and subscriber base.

 

Earnings before interest, tax, depreciation, and amortisation (EBITDA) has marginally declined by around 1% in fiscal 2024, owing to higher licence and sales and marketing expenses. Operating performance should improve over the medium term, aided by addition to subscriber base and higher penetration of high-definition (HD) digital television (TV) services. These factors would continue to be monitored.

 

• Strong financial risk profile: Healthy cash accrual and absence of debt support the financial risk profile. Networth remains negative due to large accumulated losses in the past and additional provisions made in fiscal 2024, with respect to potential liability towards disputed license fees. However, networth is expected to improve aided by growth in accrual.

 

• Strong operational, financial, and managerial linkages with BAL: Telemedia remains strategically important to BAL, as it enables the parent to offer bundled services (voice, data, and TV), in line with global practices. As BAL and Telemedia have a common distribution network, the resultant cost synergies help Telemedia maintain the highest operating margin amongst DTH players. There has been good traction for ‘Airtel Black’, launched by the company, wherein customers can bundle two or more of Airtel services (fiber, DTH, mobile) together.

 

BAL owns 100% stake in Telemedia and exercises operational as well as managerial control. Though Telemedia has not required any financial support from BAL in the past few fiscals, backed by its own healthy accrual, the strong parentage continues to underpin the high financial flexibility.

 

Weaknesses:

• Exposure to risks inherent in the DTH business: The DTH business requires consistent capital expenditure (capex) to deploy set top boxes (STBs). Players have to ramp up their scale and maintain market share amidst significant churn in subscribers, and incur sizeable cost of establishment (installation service and software, operational and customer support) and operating expenses (advertising as well as cost of acquiring subscribers). Therefore, any impact on operating performance, constraining the cash flow, may directly impact the market position because of reduced capex intensity.

 

Furthermore, DTH operators are exposed to risk arising from technological advancements and changes in consumer behavior. For instance, growing popularity of over-the-top (OTT) platforms could be a threat in the medium to long run. With limited product differentiation, the industry witnesses intense competition between the four large operators, and from cable TV operators as well as free dish.

 

• Large disputed regulatory dues: As per the demand notices shared by the Ministry of Information and Broadcasting in fiscals 2023 and 2024, Telemedia has potential liability of Rs 558 crore towards disputed licence fees. The company has made provisions of around Rs 3,426 crore as on March 31, 2024, but does not anticipate any payout. CRISIL Ratings understands that parent will continue to support Telemedia in case of any exigency. However, any material payout in this regard will remain key monitorable.

Liquidity: Strong

Liquidity is aided by cash and liquid investments of over Rs 53 crore as on March 31, 2024. CRISIL Ratings expects net cash accrual from operations to remain healthy in the absence of any debt obligation. Steady capex is likely to be funded via internal accrual. Any adverse ruling on the disputed license fees may impact liquidity and will remain a key monitorable.

Rating Sensitivity factors

Downward factors:

• Significant decline in subscriber base or ARPU of Telemedia, amidst competition from peers or other streaming devices, leading to sustained fall in net cash accrual
• Downgrade in ratings of BAL by one or more notches
• Adverse ruling on disputed license fee matter, constraining the financial risk profile

About the Company

Telemedia, a subsidiary of BAL, is a DTH platform that offers standard and HD digital TV services, with 3D capabilities and Dolby surround sound. It offers 648 channels, including 85 HD channels, six international channels and three interactive services. As on March 31, 2024, the company had a subscriber base of around 16.1 million.

About BAL

Headquartered in India, BAL is a global communications solutions provider to nearly 56 crore customers across 17 countries, spanning South Asia and Africa as on March 31, 2024. 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.

 

Its 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 include secure connectivity, cloud and data centre services, cyber security, Internet of Things, Ad Tech and cloud-based communication.

 

As on March 31, 2024, the company had 35.2 crore mobile subscribers in India and around 15 crore subscribers in Africa.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024*	2023
Revenue	Rs.Crore	3,045	2949
Profit After Tax (PAT)	Rs.Crore	-76	-349
PAT Margin	%	-2.5	-11.9
Adjusted debt/adjusted networth	Times	NM	NM
Adjusted interest coverage	Times	NM	NM

    These are CRISIL Ratings’ adjusted numbers and may not match directly with the company reported numbers.

     NM: Not meaningful as networth is negative and there is nil debt

     *Provisional

Any other information: Not Applicable