Rating Rationale
November 22, 2018 | Mumbai
Bharti Airtel Limited
Rated amount enhanced
Rating Action
Total Bank Loan Facilities Rated Rs.20000 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Rs.3000 Crore Non Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.272.5 Crore Non Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.10000 Crore Commercial Paper (Enhanced form Rs.6000 Crore) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facility and debt instruments of Bharti Airtel Limited (Bharti Airtel).
On November 15, 2018, CRISIL had downgraded its rating on the long-term bank facility and non-convertible debentures (NCDs) of Bharti Airtel to 'CRISIL AA/Stable' from 'CRISIL AA+/Negative'. The rating on the commercial paper programme was reaffirmed at 'CRISIL A1+'.
The downgrade reflected weakness in the Indian mobile industry on account of continued pricing pressure, which has constrained Bharti Airtel's business risk profile. Weaker cash accrual and high investment towards network enhancement in the India mobile segment have increased leverage. Though the company has been taking steps to correct its leverage, ability to execute de-leveraging plans in a timely manner and sustain operating performance will continue to be monitored over the medium term.
The ratings continue to reflect Bharti Airtel's strong market position with increased share in the telecom business in India, healthy and diversified operations in Africa and non-mobility businesses in India, and high financial flexibility. These strengths are partially offset by continued competitive intensity on account of pricing pressure in the India mobile segment, modest debt protection metrics, and exposure to regulatory changes and technological risks.
Operating performance continues to be affected by intense pricing pressure, as reflected in sequential decline in EBITDA to Rs 6,343 crore for the quarter ended September 30, 2018, from Rs 6,837 crore for the quarter ended June 30, 2018. Average revenue per user (ARPU) dropped to Rs 101 from Rs 106.
Capital expenditure (capex) remains high: of the total expenditure of Rs 26,000-28,000 crore budgeted for fiscal 2019, Bharti Airtel spent Rs 15,901 crore in the first-half due to upfront capex towards network enhancement.
Weaker accrual and high capex have increased leverage. Net debt (including finance lease obligation) to EBITDA (leverage ratio) increased to 3.90 times as on September 30, 2018, from 3.25 times as on March 31, 2018. The ratio is, however, likely to correct materially over next 15-18 months, mainly driven by de-leveraging plans. Leverage ratio after adjusting for proceeds of USD1.25 billion from stake sale in Africa business is 3.60 times.
The company continues to take proactive steps to correct leverage. In October 2018, USD1.25 billion was raised through stake sale in the African subsidiary. Partial stake in the other subsidiaries, Bharti Infratel Ltd (Bharti Infratel) and Bharti Telemedia Ltd (DTH business), were also sold in fiscal 2018. Bharti Airtel has various options for de-leveraging over the next 15-18 months, including possible dilution of stake in the tower business post-merger of Bharti Infratel and Indus Towers Ltd ('CRISIL AA+/Stable/CRISIL A1+'), and listing of the Africa mobility business housed under Bharti Airtel International Netherland BV (BAIN BV), among others. Meanwhile, Bharti Airtel remains prudent in managing its liabilities as it recently launched tender offer for its EUR 1 billion and USD1.5 billion bonds.
CRISIL has not factored in any material outgo towards the proposed 5G spectrum auction; any significant payout towards the auction will continue to be monitored.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Bharti Airtel's India, South Asia, and Africa operations, and of Bharti Infratel. This is because these entities are under a common management and have strong business and financial links.

Key Rating Drivers & Detailed Description
* Strong market position in the mobile telephone segment in India: Bharti Airtel is the second-largest mobile telephone operator in India by revenue market share, backed by a pan-India network. Active wireless subscriber base rose to 34.06 crore as of August 2018 (market share of 33.6%), from 27.31 crore as of August 2017 (market share of 26.8%). Adjusted gross revenue market share was 30.4% for the quarter ended June 30, 2018. Bharti Airtel has the largest spectrum among peers, 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 strong market position, despite intense price competition.
* Healthy and diversified operations in Africa and non-mobile businesses in India: Bharti Airtel has a diversified portfolio of businesses, including healthy 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 September 30, 2018, from 33% during the same period of the previous fiscal. Operating performance of other businesses'digital TV and Airtel business services'have also improved, with EBITDA margin increasing to 39% and 41%, respectively, from 36% and 37%. Performance in these businesses should remain stable, thereby partially supporting 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). 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-Mittal family and SingTel'have a strong reputation.
* 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 Bharti Airtel's 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% year-on-year in fiscal 2018. Pressure on revenue and operating profit may persist over the near to medium term if the intense price competition continues.
However, the changing industry landscape has expedited consolidation, with smaller players exiting the market and others combining businesses. Leveraging the opportunity, Bharti Airtel has grown its revenue market share and spectrum footprint through organic business operations and strategic deals with other telecom operators.
* Moderate debt protection metrics: Intense competition in the India wireless telecom business has constrained profitability and cash accrual. Furthermore, significant capex incurred to enhance 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 averaged 3.66 times as on March 31, 2018. Liquidity, however, remains robust with more than Rs 10,000 crore of cash and liquid investments as on September 30, 2018. Initiatives to deleverage and grow operating profit will continue to be monitored closely. The company has realised USD1.25 billion from stake sale in Africa business in October 2018 towards deleveraging plans.
* 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 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.
Outlook: Stable

CRISIL believes Bharti Airtel will maintain its strong market position in the Indian telecom segment over the medium term. CRISIL has factored in the company's debt reduction measures and anticipates leverage to reduce.
Upside scenario
* Higher-than-expected reduction in leverage, led by increase in cash accrual and timely execution of de-leveraging plans
* Improvement in business risk profile, driven by greater subscriber share and ARPU
Downside scenario
* Further decline in operating profit or delay in execution of deleveraging plans leading to net debt to EBITDA remaining high on a steady basis
* Larger-than-expected capex due to technological changes or debt-funded spectrum acquisition constraining financial risk profile

About the Company

Bharti Airtel is the second-largest telecom service provider in India. It was the number 1 telecom player till the merger of Vodafone India Ltd and Idea Cellular Ltd created the new largest telecom player, Vodafone Idea Ltd.
Bharti Airtel is a reputed, integrated telecom service operator that provides mobile, broadband, fixed-line telephone, and enterprise services. Mobile telephone services are offered in all 22 telecom circles. The company had 34.7 crore subscribers in India as on September 30, 2018, across the mobile, DTH, and enterprise services. Around half the total revenue and a third of EBITDA are derived from domestic mobile telephone services.
Bharti Airtel acquired Zain Africa BV in March 2010 and operates in 15 countries in Africa. In fiscal 2017, the company sold its operations in two African countries'Burkina Faso and Sierra Leone-to Orange SA. Bharti Airtel also operates in Sri Lanka. During fiscal 2017, it merged the Bangladesh operations with Robi Axiata Ltd, a unit of Axiata Group Berhad, and holds 25% stake in the merged entity.
Profit after tax (PAT) was Rs 729 crore on revenue of Rs 40,502 crore during the six months ended September 30, 2018, compared with PAT of Rs 1,204 crore on revenue of Rs 43,735 crore during the corresponding period in the previous fiscal.

Key Financial Indicators
As on / for the period ended March 31   2018 2017
Operating revenue Rs crore 83,688 95,468
Profit after tax Rs crore 2,184 4,241
PAT margin % 2.6 4.4
Adjusted debt/adjusted networth Times 1.42 1.44
Interest coverage Times 3.50 4.00

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)
Rating assigned
with outlook
NA Debenture* NA NA NA 272.5 CRISIL AA/Stable
INE397D08029 Debenture 13-Mar-18 8.25% 20-Apr-20 1500 CRISIL AA/Stable
INE397D08037 Debenture 13-Mar-18 8.35% 20-Apr-21 1500 CRISIL AA/Stable
NA Commercial paper NA NA 7-365 days 10000 CRISIL A1+
NA Proposed Long Term
Bank Loan Facility
NA NA NA 20000 CRISIL AA/Stable
*Yet to be placed
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  10000.00  CRISIL A1+  15-11-18  CRISIL A1+  25-10-17  CRISIL A1+  28-12-16  CRISIL A1+  22-04-15  CRISIL A1+  CRISIL A1+ 
        22-05-18  CRISIL A1+      18-03-16  CRISIL A1+       
        09-03-18  CRISIL A1+               
        08-01-18  CRISIL A1+               
Non Convertible Debentures  LT  3000.00
CRISIL AA/Stable  15-11-18  CRISIL AA/Stable  25-10-17  CRISIL AA+/Stable  28-12-16  CRISIL AA+/Stable  22-04-15  CRISIL AA+/Stable  CRISIL AA+/Stable 
        22-05-18  CRISIL AA+/Negative      18-03-16  CRISIL AA+/Stable       
        09-03-18  CRISIL AA+/Stable               
        08-01-18  CRISIL AA+/Stable               
Fund-based Bank Facilities  LT/ST  20000.00  CRISIL AA/Stable  15-11-18  CRISIL AA/Stable  25-10-17  CRISIL AA+/Stable/ CRISIL A1+  28-12-16  CRISIL AA+/Stable/ CRISIL A1+  22-04-15  CRISIL AA+/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
        22-05-18  CRISIL AA+/Negative      18-03-16  CRISIL AA+/Stable/ CRISIL A1+       
        09-03-18  CRISIL AA+/Stable               
        08-01-18  CRISIL AA+/Stable               
Non Fund-based Bank Facilities  LT/ST          25-10-17  CRISIL AA+/Stable/ CRISIL A1+  28-12-16  CRISIL AA+/Stable/ CRISIL A1+  22-04-15  CRISIL AA+/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
                18-03-16  CRISIL AA+/Stable/ CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 20000 CRISIL AA/Stable Proposed Long Term Bank Loan Facility 20000 CRISIL AA/Stable
Total 20000 -- Total 20000 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Mobile Telephony Services
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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