Rating Rationale

Strengths:
* Strong market position in the mobile telephone segment in India: The market position is backed by a healthy subscriber and revenue market share with a pan-India network. The active wireless subscriber base rose to 336 million as of December 2018 (market share of 32.7%), from 302 million as of December 2017 (market share of 29.8%). Adjusted gross revenue market share (including national and international long distance) was 29.7% (31.5% including Tata Teleservices Ltd) for the quarter ended December 31, 2018. Bharti Airtel has large spectrum spread across 900 megahertz (MHz), 1,800 MHz, 2,100 MHz, and 2,300 MHz bands; this 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 to maintain a strong market position, despite intense price competition.

* Healthy and diversified operations in Africa and non-mobile businesses in India: Improvement in Africa operations was substantial, as demonstrated by increase in EBITDA margin to 37% in the quarter ended December 31, 2018, from 35.5% during the corresponding period of the previous fiscal. Operating performance of other businesses'digital TV, broadband and fixed line, and Airtel business services'have also remained strong with a healthy EBITDA margin. Performance in these businesses should remain stable, thereby partially supporting cash accrual against pricing pressure in the India mobility business.

* Healthy financial flexibility: Financial flexibility is driven by investments in healthy businesses, including telecom towers (Bharti Infratel) and the Africa mobility business (housed under BAIN BV) as well as strong promoters. Initiatives such as sale of stakes in the African subsidiary, Bharti Infratel, and Bharti Telemedia have helped to contain debt. Bharti Airtel 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 de-leveraging plan. Furthermore, the shareholders-the Mittal family and SingTel'have a strong reputation.

Weaknesses:
* Continued competitive intensity in the domestic mobile services segment: With the entry of Reliance Jio in September 2016, price competition in the domestic mobile services segment has intensified. This, along with reduction in call termination charges, led to a decline in ARPU to Rs 101 in the quarter ended September 30, 2018, from Rs 188 in the quarter ended September 30, 2016. Revenue from the Indian mobile services segment declined 18.2% fiscal-on-fiscal in fiscal 2018.

Though the ARPU has increased during the quarter ended December 31, 2018, to Rs 104 from Rs 101 in the preceding quarter, the EBITDA for the India mobility business declined by Rs 197 crore over this period. Ability to maintain ARPU growth and thereby improve operating profits in the India mobility business will remain a key monitorable.

* Modest debt protection metrics: Intense competition in the India wireless telecom business has constrained profitability and cash accrual. Furthermore, significant capex for enhancing network capabilities has increased debt (including deferred spectrum payments), leading to subdued debt protection metrics: interest coverage ratio was 3.50 times in fiscal 2018. Gross leverage was 3.66 times as on March 31, 2018. Initiatives to deleverage and to grow operating profit will continue to be monitored closely.

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

Furthermore, telecom is a highly regulated market. Government reduced call termination charges for domestic calls to 6 paise from 14 paise, and for international calls to 30 paise from 53 paise; this constrained profitability of large incumbent players. Moreover, 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.

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Airtel Payments Bank Limited

Fully consolidated