| Bharti Airtel Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+/Positive/CRISIL A1+'; NCD Withdrawn | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Positive/CRISIL A1+’ ratings on the bank facilities and debt programme of Bharti Airtel Limited (BAL). Further, CRISIL Ratings has withdrawn its rating on the non-convertible debentures’ basis request from company. The withdrawal is in line with the rating withdrawal policy of CRISIL Ratings.
The ratings continue to reflect the company’s strong market position and healthy as well as improving operating performance of the domestic mobile and non-mobile segments, diversification across businesses, healthy operations in Africa, strong debt protection metrics and high financial flexibility. These strengths are partially offset by exposure to technological risks.
The improvement in the business risk profile is supported by recent broad-based tariff hikes of 17-19% on average taken by BAL in June 2024, which is expected to boost the average revenue per user (ARPU). This, accompanied with rising data usage with the adoption of 5G services leading to subscribers up-trading, will continue to drive growth in ARPU over the near to medium term. CRISIL Ratings does not estimate any major change in the market share of BAL, given the tariff hikes have been taken near-simultaneously by all three major telecom companies (telcos). However, consolidation of the overall subscriber base due to an increase in tariffs and any consequent impact on revenue will remain monitorable.
The operating performance of the company has improved sequentially over the past few years, resulting in healthy business as well as financial risk profiles. Consolidated revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) grew at compound annual growth rate (CAGR) of ~14% and ~20% over fiscals 2021 to 2024, respectively. This was largely driven by continued strong growth in the India mobile business (accounting for ~60% of consolidated EBITDA). The company had the highest ARPU in the India mobile services industry at Rs 209 during the quarter ended March 2024.
Besides, BAL also benefits from diversified operations in Africa along with presence in enterprise services, home broadband and dish-to-home (DTH) segments in India. Business segments such as home broadband and enterprise services are expected to see strong growth momentum, as seen over the last few years. BAL also continued to maintain strong EBITDA margins in these businesses. Therefore, going forward, the business risk profile is expected to be driven by expectation of sustenance of strong operating performance across segments.
The improvement in the business risk profile will also be accompanied by improvement in the financial risk profile due to moderation in capital expenditure (capex) over the near to medium term, resulting in better debt protection metrics.
The net leverage[1] of BAL improved to ~2.6 times in fiscal 2024 (compared with 3.0 times in fiscal 2023), despite large dues pertaining to spectrum purchase and adjusted gross revenue (AGR) led liabilities. Furthermore, with the part payment of the Department of Telecommunications (DOT) liabilities in the first quarter of this fiscal, the net leverage is likely to improve to ~2.5 times. As strong cash flow from the business is expected to contribute towards steady deleveraging, net leverage is expected to improve to even below 2.5 times in the near term.
Capex intensity[2] averaged 26% over the past two fiscals and is expected to moderate over the medium term as mass 5G networks have been established. Similarly, spectrum capex is also likely to reduce as most of the spectrum purchase was completed in fiscal 2023. BAL had acquired significant spectrum for a total consideration of Rs 43,084 crore in the spectrum auction held in August 2022 to initiate pan-India 5G rollout. Compared with that, in the latest auction in June 2024, BAL has won Rs 6,857 crore worth of spectrum, of which the majority was for renewal of expiring licenses.
Spectrum investment may continue in Africa, and overall, capex outlay for the Africa mobile business is expected to be stable. A higher-than-expected outgo towards network layout or on spectrum acquisition, which could have a bearing on the overall financial risk profile, will continue to remain a key rating sensitivity factor.
Overall, the ratings continue to reflect the company’s strong market position and healthy, as well as improving, operating performance of the domestic mobile and non-mobile segments, diversification across businesses, resilient operations in Africa, healthy debt protection metrics and high financial flexibility. These strengths are partially offset by exposure to technological risks. [1]Net leverage is calculated on the basis of gross debt including deferred payment liabilities, lease obligations minus cash and equivalents. [2]Capex (as reported by the company) as percentage of revenue |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BAL’s India, South Asia and Africa operations. This is because BAL has majority ownership (more than 50%) in these entities.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
BAL has a healthy subscriber base and revenue market share with pan-India network. As per the Telecom Regulatory Authority of India, the company had a wireless subscriber base of 35.2 crore as on March 31, 2024 (market share of ~33%). Revenue market share (including national and international long distance) was strong at ~39% for the quarter ended March 2024. Furthermore, BAL has large spectrum holdings spread across various bands which fortify its market position.
As on March 31, 2024, 4G/5G subscribers accounted for over 90% of BAL’s data customer base. It continues to sustain the highest ARPU over the last couple of fiscals. It is expected to continue to improve, led by rising data usage and planned tariff hikes, thereby aiding cash flow generation over the medium term, which will be monitored.
The consistent improvement in Africa operations is demonstrated by the increase in revenue (on a constant currency basis) on account of the increasing subscriber base and stable ARPU. In fiscal 2024, the operating profit of the African business improved by ~21% (on a constant currency basis) while operating margin remained at 48-49%. However, currency devaluations in key geographies continue to impact overall revenue and EBITDA. Devaluation of Nigerian Naira twice in fiscal 2024 (Nigeria accounts for ~40% of the African mobile business) affected the performance in rupee terms due to currency translation impact. While fundamental growth is expected to continue over the medium term, led by growth in data and mobile money businesses, the extent of impact of currency fluctuations will be monitored.
Operating performance and scaling of non-mobility businesses in India (accounting for ~15% of consolidated EBITDA), especially, home broadband and Airtel business services, has also remained strong. Home broadband and Airtel business services had healthy EBITDA margin at ~50% and ~40%, respectively, in fiscal 2024, despite competition. Along with improvement in the mobile business in India, this will continue to generate strong cash accrual.
Overall gross debt of BAL stood at Rs 2,15,631 crore as on March 31, 2024, of which 48% were for deferred spectrum and AGR dues to DOT, 30% were in the form of lease liabilities and only balance 22% was external debt. Despite substantial spectrum liabilities, the financial risk profile of BAL remained healthy, aided by improving operating performance. With strong cash accrual expected, going forward, the cash flow is expected to be utilised for deleveraging.
Moreover, diversification across businesses and the strong reputation of the promoters continue to support financial flexibility. The company has a track record of raising significant funds at competitive rates in the domestic and overseas markets. Besides, the management has also demonstrated its financial flexibility by raising significant equity over the past few years. For instance, in August 2021, BAL announced fundraising of ~Rs 21,000 crore through partly paid rights issue, of which only 25% have been utilised so far and the balance can still be called. That said, any larger-than-expected acquisition will be a key monitorable.
Weakness:
Regulatory and policy changes play a central role in defining the risk characteristics of the Indian telecom sector. Its presence in multiple geographies exposes BAL to international regulatory risks as well. In Africa alone, operations are spread across 14 markets, with the top five countries accounting for about 2/3rd of the total revenue. Each market has its own regulatory environment and distinct consumer behavior patterns, which could have a bearing on the company’s business as well as financial risk profiles. That said, BAL has taken concrete steps in hedging the African balance sheet by paying off the holding company debt and converting the operating company debt into local currency.
The telecom sector also remains susceptible to technological changes, with capex cycles every 8-10 years. New technology in the telecom sector could necessitate fresh investments or overhaul of existing networks. For instance, with the launch of 5G services, players were required to significantly invest in laying networks even after incurring significant capex for 4G networks few years preceding that. |
Liquidity: Strong Cash and equivalent of around Rs 10,192 crore as on March 31, 2024, were entirely unencumbered. Strong cash accrual and existing liquidity should sufficiently cover debt obligation over the medium term. Capex (including the spends on acquiring new spectrum, if any) is likely to remain moderate over the medium term. Network capex is expected to be funded through internal accrual and liquidity.
Environment, social and governance (ESG) profile CRISIL Ratings believes that Environment, Social and Governance (ESG) profile of BAL supports its already strong credit risk profile.
The telecom sector is exposed to material impact on the environment owing to higher electricity requirements at data centres and network infrastructure with increasing data consumption. Waste associated with end-of-life network equipment and hardware can pollute land resources as well. Telcos are also exposed to significant regulatory risk and operational disruption if data security breaches, loss of customer data and network disruptions occur. Moreover, the systemic importance of telecom services to society and the economy underscores the importance of resilient and accessible networks to the widest number of users. Ensuring access to affordable services for all customers is also relevant for companies’ reputations. BAL has continuously focused on mitigating its environmental and social risks.
Key ESG highlights (as of March 2024): • The company has been taking various measures to optimise energy consumption, water consumption, waste generation, reducing greenhouse gas (GHG) emissions and employee training and education. • For GHG emission, the company has adopted science-based targets for reducing Scope 1&2 emissions by 50.2% and Scope 3 emissions by 42% by 2031 (taking fiscal 2021 as the baseline). • For optimising energy consumption, the company has been working on solarisation of networks. About 15,045 of BAL’s network sites have been solarised in fiscal 2024 and rooftop solar plants have been installed across 30 locations at data centres and main switching centres with total installed capacity of ~82 megawatt peak (MWp). • The company aims to achieve 100% wastewater recycling at all data centres and become water positive in the near future. During fiscal 2024, 16% of the water was consumed from recycled and harvested sources. • For e-waste, the company ensures all scrap auctions are done through authorised partners who enable recycling. • The governance structure is characterised by 55% of its board comprising independent directors, split in chairman and CEO positions, healthy investor grievance redressal and extensive disclosures. • An ESG committee of the board and ESG management council have been set up to further sharpen the focus on ESG efforts.
There is growing importance of ESG among investors and lenders. BAL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its moderate share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Positive The business risk profile will continue to benefit from its presence in diversified businesses and a healthy market position in the mobility business in India, while the financial risk profile will benefit from expected increase in cash accrual and moderation in capex. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Headquartered in India, BAL is a global communications solutions provider with ~56 crore customers in 17 countries across 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. Airtel's 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 (IoT), ad tech and cloud-based communication. The company had 35.2 crore mobile subscribers in India and ~15 crore in Africa as on March 31, 2024. |
Key Financial Indicators
Note: These numbers are adjusted for the analytical treatment of CRISIL Ratings and may not represent the numbers reported by the company. *Provisional ** Includes interest costs on lease liabilities, bank charges, forex hedging costs and losses etc. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Interchangble between Fund Based (all categories’, including Intra-day overdraft) and Non Fund Based
Annexure - Details of Rating Withdrawn
*Yet to be placed |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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