Rating Rationale

Key Rating Drivers & Detailed Description

Strengths

Strong market position and improving operating performance of 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 company had a wireless subscriber base was 35.4 crore as of September 30, 2021 (market share of 30.4%). Revenue market share (excluding national and international long distance) was strong at over ~35% for the quarter ended September 30, 2021.

Furthermore, BAL has large spectrum holdings of over 2,100 MHz spread across various bands which fortifies the market position. Robust brand equity, timely fund raising and quick response to changing market conditions have helped the company maintain a strong market position

Moreover, the company also continues to steadily increase its 4G customer base which are high ARPU accretive. As on September 30, 2021, BAL’s 4G subscribers stood at 19.3 crore, indicating year-on-year growth of ~26%. %. It had the highest ARPU for India mobile services in the industry at Rs 153 during the quarter through September 2021. Moreover, current tariff hike should improve ARPU further and increase cash flow generation over the medium term.

Healthy and diversified operations in Africa and non-mobile businesses in India

The consistent improvement in BAL’s Africa operations is demonstrated by increase in the revenue on account of rising ARPUs and increasing subscriber base. EBITDA margins of Africa business also improved by ~410 bps on-year to 48.6% during the first half of fiscal 2022. Operating performance of other businesses in India —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 shall continue to generate strong cash accrual.

Healthy financial risk profile aided by improving debt protection metrics and strong financial flexibility

BAL’s financial risk profile remain healthy despite additional liabilities pertaining to AGR and spectrum dues, aided by improving operating performance.

The company has undertaken several fund-raising measures over the past few years through a rights issue of Rs 25,000 crore in May 2019 and through proceeds of USD 1.45 billion Africa pre-IPO funding and USD 680 million from the listing of its Africa business. 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 in February 2020. In March 2021, Company raised USD 500 million through perpetual bonds. In the current fiscal, Airtel Africa Plc has sold its stake worth USD 500 million in Airtel Money. Furthermore, it also sold its tower portfolio belonging to Airtel Tanzania and Madagascar and entered into agreements for sale of its tower assets in Malawi, Chad and Gabon. Moreover, on August 29, 2021, BAL’s board approved raising funds through rights issue of up to Rs. 21,000 crore. Of this, ~25% have already been raised in October 2021. These measures should aid improvement in the leverage of BAL in the near term. Thus, net leverage is likely to improve from the current level of ~3 times and is expected to sustain below 2.5 times over the near term.

Moreover, BAL’s diversification across businesses and strong reputation of promoters enhances the financial flexibility. The company has wide access to financial markets, as demonstrated by its track record of raising significant funds at competitive rates in the domestic and international markets.

Weakness

Exposure to regulatory and technological risks

Regulatory and policy changes have played a central role in defining the risk characteristics of the Indian telecom sector. The sector is extremely dynamic structurally and therefore the risks pertaining to regulatory intervention will persist, though it has been moderated with the recent structural reforms measures announced for the sector by the Union Cabinet.

Presence in multiple geographies exposes BAL 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.

The telecom industry also remains susceptible to technological changes. New technology in the telecom industry could necessitate fresh investments or overhaul of existing networks. The advent of 4G, for instance, has seen operators investing substantially in upgrading infrastructure even before they had made significant gains on investments in 3G. However, with the transition to 5G, players may need to incur significant capex for acquiring spectrum, though with the advanced technology incremental expenditure on network equipment is expected be limited. CRISIL Ratings understands that BAL had already started investing towards 5G capabilities including fibre and networks. Thus, 5G rollout shouldn’t see significant rise in capex requirements from the current levels.