Rating Rationale

Strengths
* Strong market position in the domestic mobile telephone segment
The company has a healthy subscriber base and revenue market share with a pan-India network. As per Telecom Regulatory Authority of India (TRAI), the wireless subscriber base was 32.7 crore, as of November 30, 2019 (market share of 28.4%), as compared with 34.2 crore, as of November 30, 2018 (market share of 29.1%). While the number of subscribers has declined, largely driven by introduction of minimum recharge plans, the subscriber market share has improved in the quarter ended December 2019. Also, the company has added highest ever net 4G addition of 2.1 crore during the quarter.

Revenue market share (excluding national and international long distance) was also healthy at 30.8% for the quarter ended September 30, 2019.

Large spectrum spread across 900 megahertz (MHz), 1,800 MHz, 2,100 MHz, and 2,300 MHz bands, fortifies the market position and enables the company to offer 2G, 3G, and 4G data services across India. Robust brand equity and quick response to changing conditions have helped maintain a strong market position, despite intense price competition.

* Healthy and diversified operations in Africa and non-mobile businesses in India
There has been consistent improvement in Africa operations, as demonstrated by the increase in EBITDA margin to 45% in the quarter ended December 31, 2019, from 37% in the corresponding period of the previous fiscal. Operating performance of other businesses- digital TV, broadband, fixed line, and Airtel business services have also remained strong, with a healthy EBITDA margin. Performance in these businesses should remain stable, thereby further supporting cash accrual in the India mobility business.

* Healthy financial flexibility
Investments in businesses, including telecom towers (Bharti Infratel) and the Africa mobility business (housed under Airtel Africa PLC), and the extensive experience of the promoters, enhance overall financial flexibility. Initiatives such as equity fund raising, and stake sales in the African subsidiary, Bharti Infratel, and Bharti Telemedia, have helped contain debt. The company also has wide access to financial markets, as demonstrated by its track record of raising significant funds at competitive rates across domestic and international markets. It has also adhered to its deleveraging plans. Furthermore, the shareholders'members of the Mittal family and SingTel'have a strong reputation. Hence, the company is likely to have full capability to fulfil the potential AGR liability.

Weaknesses
* Lower, though improving, cash accrual for the India mobility business
With the entry of Reliance Jio in September 2016, price competition in the domestic mobile services segment had intensified. This, led to a decline in ARPU (average revenue per user) over past few years. Revenue from the Indian mobile services segment cumulatively declined by 26.6% over fiscals 2018 and 2019.

Measures like introduction of minimum recharge packs have helped to increase the ARPU to Rs 135 for the quarter ended December 2019. Overall, these steps have led to higher revenue and EBITDA in the India mobility business, which increased sequentially by Rs 823 crore and Rs 414 crore, respectively, in the December 2019 quarter over the September quarter.

The recent tariff hike by the industry will further improve ARPU. However, CRISIL will continue to monitor ARPU growth and thereby improving operating revenue and profits in the India mobility business.

* Modest debt protection metrics
Intense competition in the India wireless telecom business had constrained profitability and cash accrual. Furthermore, significant capital expenditure (capex) for enhancing network capabilities, had increased debt (including deferred spectrum payments) and lead to subdued debt protection metrics.

The company has, however, undertaken deleveraging over the past few years, through a rights issue of Rs 25,000 crore in May 2019, and proceeds of USD680 million from the listing of Africa business in July 2019. In October 2019, an issuance of perpetual securities of USD750 million further reduced leverage. As a result, net debt to annualised EBITDA ratio as on December 31, 2019, after considering lease capitalisation, was 3.07 times. In addition, the company has raised USD 2 billion through Qualified Institutional placement, USD 1 billion through foreign currency convertible bond and USD 250 million through perpetual bond over past two months. Further initiatives to deleverage and to increase operating profit will continue to be monitored closely. Any sustained weakening of leverage from the current levels over medium term, will remain a key rating sensitivity factor.

* Exposure to regulatory changes and technological risks: The telecom industry remains susceptible to regulatory and technological changes. New technology could necessitate fresh investments or overhaul of the existing networks.

Furthermore, telecom is a highly regulated market. Drop in termination charges, for domestic calls to 6 paisa from 14 paisa, and for international calls to 30 paisa from 53 paisa, had constrained profitability of large incumbent players.

However, TRAI has deferred the plan of reduction in interconnect usage charges (IUC) to zero paisa per minute to January 1, 2021, earlier planned to be effective from January 1, 2020 which will be beneficial to BAL.

Moreover, a presence in multiple geographies exposes the company to international regulatory risks. In Africa alone, operations are spread across 14 markets, with the top five countries accounting for 60% of total revenue. Each market has its own regulatory environment and distinct consumer behaviour patterns.