Rating Rationale

Strengths
* Strong market position in the domestic mobile telephone segment
BAL 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 31.7 crore as of May 2020 (market share of 27.7%). Also, the company's 4G subscriber addition remained healthy. As on June 30, 2020, BAL's 4G subscribers stood at 13.8 crore, indicating year-on-year growth of 45.3%. Revenue market share (excluding national and international long distance) was healthy at about 33% for the quarter ended March 31, 2020.

Furthermore, 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 the company 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 BAL's Africa operations, as demonstrated by increase in the EBITDA margin to around 44% over the quarter ended June 30, 2020, from around 39% in the corresponding period of the previous fiscal. Operating performance of other businesses'digital television, broadband, fixed line and Airtel business services'has also remained strong, with a healthy EBITDA margin. Strong performance in these businesses along with improvement in the mobile business in India should help BAL maintain strong cash accrual.

* 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. The company in past has contained debt through initiatives such as equity fundraising and monetisation of stake in the African subsidiary, Bharti Infratel and Bharti Telemedia. 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'Mr Sunil Mittal, his family members and SingTel'have a strong reputation.

Weaknesses
* Low, though improving, cash accrual for the mobility business in India
Price competition in the domestic mobile services segment had intensified with the entry of Reliance Jio in September 2016. This led to a decline in average revenue per user (ARPU) over the past few years. However, measures such as introduction of minimum recharge packs and tariff hikes taken in December 2019 have helped BAL increase the ARPU to Rs 157 for the quarter ended June 2020 from Rs 129 in the corresponding period of the previous fiscal. Furthermore, the company also continues to steadily increase its 4G customer base which are high ARPU accretive. Overall, these steps have also improved the cash accrual.

While competitive intensity has moderated over the past few quarters, CRISIL will continue to monitor ARPU growth and, thereby, improvement in operating revenue and profit in the mobility business in India.

* Modest debt protection metrics
Constrained profitability and significant capital expenditure (capex) for enhancing network capabilities had increased debt (including deferred spectrum payments) and led to subdued debt protection metrics in the past few years.

The company has, however, undertaken deleveraging measures over the past few years through a rights issue of Rs 25,000 crore in May 2019 and through proceeds of USD 680 million from the listing of its Africa business in July 2019. In October 2019, an issuance of perpetual securities of USD 750 million further reduced leverage. 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. Thus, net debt to EBITDA reduced to 2.8 times in fiscal 2020 from 4.5 times in fiscal 2019.

This fiscal, while leverage will get impacted by AGR liabilities, it should improve gradually with better profitability. Furthermore, initiatives to deleverage and increase operating profit will continue to be monitored closely. Any sustained weakening of leverage from current levels will remain a key rating sensitivity factor over the medium term.

* 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 current networks.

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 about 60% of the total revenue. Each market has its own regulatory environment and distinct consumer behaviour patterns.