Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of Tata Teleservices (Maharashtra) Ltd (TTML).

 

The reaffirmation factors in the stable operating performance of the company. The standalone operating performance remained stable with revenues of Rs 1193 crore and healthy operating margin of 44.5% for fiscal 2024 compared to Rs 1107 crore and 44.6% respectively in fiscal 2023. The financial risk profile is constrained by sizeable debt of ~Rs 19,954 crore as on March 31, 2024 on account of large adjusted gross revenue (AGR) dues. This has led to weak debt protection metrics. Continuation of strong support expected from ultimate parent, Tata Sons Pvt Ltd (Tata Sons; 'CRISIL AAA/Stable/CRISIL A1+') to TTML and its parent, Tata Teleservices Limited (TTSL; ‘CRISIL AA-/Stable/CRISIL A1+’), together referred to as Tata Tele, is expected to continue going forward.

 

On October 14, 2021, the Department of Telecommunications (DoT) provided various options to telecommunication companies as per the reform package approved for the telecommunication (telecom) sector by the Union Cabinet (in September 2021). The options included a one-time opportunity to opt for deferment of adjusted gross revenue (AGR)-related dues by four years with immediate effect; and a one-time opportunity to exercise the option of paying interest for the four years of deferment on the deferred AGR dues by way of conversion into equity of the net present value of the interest amount. On October 29, 2021, Tata Tele opted for the moratorium of AGR related dues by four years. Hence, these AGR dues will be due in 6 annual installments starting from March 2026.

 

The outstanding AGR-related liabilities of Tata Tele stood at around Rs 17,830 crore as on March 31, 2024. CRISIL Ratings understands that no further material AGR liabilities are likely on Tata Tele pertaining to its transactions with Bharti Airtel Ltd (BAL; CRISIL AA+/Positive/CRISIL A1+) and Bharti Hexacom Ltd (BHL; CRISIL A1+).

 

Tata Sons is expected to provide timely financial support to Tala Tele during any shortfall in liquidity. This strength is partially offset by weak debt protection metrics.

 

Tata Tele, along with other telcos, had filed a curative petition drawing the Supreme court’s attention to the fact that mathematical/calculation errors exist in the dues claimed by the DoT. CRISIL Ratings notes that this petition was rejected by the Supreme Court in September 2024. However, Tata tele had fully provided for these liabilities in its books. Company is pursuing other remedies for relief of AGR dues which will remain monitorable.

 

Further, the Supreme court held that license fee paid by telecom companies will be treated as capital expenditure and not revenue expenditure, implying that license fees paid by these companies will be a depreciable asset, compared with being treated as an operating expense. The financial impact of the judgement will be a key monitorable.

Analytical Approach

CRISIL Ratings has applied its parent notch-up criteria to factor in the extent of support expected from its ultimate parent, Tata Sons. The ratings are centrally based on parent support.

 

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:

• Expectation of continued strong support from Tata Sons: Tata Tele receives significant financial and managerial support from Tata Sons, which has infused Rs 23,090 crore since April 2018. While external debt (excluding AGR dues) remains elevated at Rs 11,572 crore as on August 31, 2024, Tata Sons will work with Tata Tele if the latter faces any shortfall in liquidity that may arise to meet its financial obligations and timely payments of debts.

 

Tata Sons, along with its affiliates, holds around 98% stake in TTSL and around 75% stake in TTML. Furthermore, association with the Tata group enables Tata Tele to leverage the parent’s brand to market products and services.

 

• Stable business risk profile: Business risk profile was weak prior to the demerger of the consumer mobile business owing to intense competition in the mobility business. After the demerger, Tata Tele continues to operate in the enterprise business which has shown stable operating performance and healthy margins. Consolidated revenue has shown steady growth while the operating margin has sustained at ~30-33% in the last 3 fiscals. However, the ability to grow revenue while sustaining margin amid intense competition, leading to better cash accrual, will remain a key monitorable.

 

Weaknesses:

• Weak capital structure and debt protection metrics: Despite fund infusion by the parent in the past, networth remained negative as on August 31, 2024 due to high interest cost and accumulated losses. Debt protection metrics are also expected to remain modest over the medium term.

 

• Exposure to regulatory and technological risks: Regulatory and policy changes have played a central role in defining the risk characteristics of the telecom sector in India. The sector is extremely dynamic structurally, and therefore, the risks pertaining to regulatory intervention will persist. For instance, the curative petition for seeking relief for the AGR dues was recent rejected by the Supreme Court. The telecom sector remains susceptible to technological changes too as newer technologies could necessitate sizeable fresh investments or overhaul of the current networks.

Liquidity: Strong

TTML had around Rs 29 crore of cash and equivalents as on August 31, 2024. Tata Sons has also provided a support letter to Tata Tele, stating its intent to take necessary actions to organise for any shortfall in liquidity to ensure timely debt servicing. Furthermore, Tata Sons has extended a letter of awareness to investors in the debt programme of Tata Tele. High financial flexibility, arising from being a part of the Tata group, enables Tata Tele to raise additional resources.

 

Tata Sons will continue to support Tata Tele for its funding requirement or to bridge any shortfall towards its financial obligation arising out of regular business activity or any regulatory payout, if required.

Outlook: Stable

CRISIL Ratings believes the parent will continue to offer need-based funding support to Tata Tele.

Rating sensitivity factors

Upward factors

• Sustenance of debt to Ebitda (earnings before interest, taxes, depreciation, and amortisation) at below 3 times over the medium term
• More-than-expected support from Tata Sons

 

Downward factors

• Downgrade in the ratings of Tata Sons by one or more notches
• Change in stance of support to Tata Tele by the parent

About the Company

Tata Tele became a pan-India telecom operator in January 2005. The company had a unified access (basic and cellular) service licence to operate in 19 circles, and a national long-distance licence to provide services within India. Tata Tele completed the sale of its consumer mobile business to BAL and BHL with effect from July 1, 2019, following the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) order directing the DoT to take the merger on record; and approval of the schemes of arrangement by NCLT (National Company Law Tribunal), Delhi, and NCLT, Mumbai.

 

Consequently, all customers, assets, spectrum and agreed liabilities of Tata Tele have been merged with BAL. Post-merger, Tata Tele continues to operate the residual businesses such as enterprise business, fixed-line, and broadband business.

 

Net loss was Rs 323 crore on operating revenue of Rs 324 crore during the three months ended June 30, 2024, against Rs 301 crore and Rs 286 crore, respectively, during the corresponding period previous fiscal.

Key Financial Indicators (TTML - standalone)

Particulars	Unit	2024	2023
Revenue	Rs crore	1,193	1,106
Profit after tax (PAT)	Rs crore	-1,128	-1,145
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	NM	NM
Adjusted interest coverage	Times	0.34	0.33

NM – Not meaningful because the reported figures are negative

Note: These are CRISIL Ratings-adjusted numbers

Any other information: Not Applicable