Moody's upgrades Bharti Airtel’s rating on improving profitability

Global brokerage Moody’s Investors Service on Wednesday upgraded the rating of Sunil Mittal-led Bharti Airtel, citing improvement in the telecom major’s operational metrics and profitability. The agency has assigned a “Baa3” issuer rating to Bharti Airtel with a stable outlook. At the same time, the brokerage has withdrawn the company's Ba1 corporate family rating (CFR).

“Moody's has also upgraded to Baa3 from Ba1 the senior unsecured debt rating on the bonds issued by Bharti as well as on the backed senior unsecured notes issued by Bharti Airtel Int'l (Netherlands) B.V.,” the rating firm says in a report on Thursday.

The outlook on the ratings has also been changed to stable from positive, as per the report.

"The rating upgrade reflects the continued strengthening of Bharti's operational metrics as well as the stabilisation of its financial profile, including lower leverage levels and improving profitability," says Annalisa Di Chiara, a Moody's Senior Vice President.

"Moreover, we expect that these improvements can be sustained given Bharti's solid market position, rising profitability at its core Indian mobile business and prudent financial management," adds Chiara.

For the January-March quarter of 2022, Bharti Airtel, the second-biggest telecom operator in India in terms of market share, recorded a consolidated net income of ₹2,008 crore, registering a year-on-year growth of 164.5%. The surge in net profit was driven by an exceptional gain of ₹906 crore and spurt in average revenue per user (ARPU) during the quarter under review. Average revenue per user (ARPU), a key metrics for telcos, rose to ₹178, up from ₹145 in Q4FY21 and ₹163 in Q3FY22.

The telco’s revenue climbed 22.3% to ₹31,500 crore in Q4 FY22, as compared to ₹25,747 crore during the corresponding period last year. Its India business revenue grew 22.7% to ₹22,589 crore. Consolidated EBITDA stood at ₹15,998 crore for the Jan-March quarter, compared to ₹12,583 crore during the same period last year.

Moody’s in its report said that Airtel’s rating was also boosted by the firm’s proven ability to access capital markets and its strong and supportive shareholder base. “Bharti's Baa3 rating considers the company's position as one of the largest telecom service operators globally in terms of subscribers (491 million), its solid market position in India's (Baa3 stable) high-growth mobile market and its large spectrum holdings.”

Going forward, the agency expects a further 15%-20% increase in Bharti's consolidated adjusted EBITDA by the end of fiscal 2023, reflecting stable growth at its Indian operations and African operations, which are held through its 56%-owned subsidiary, Airtel Africa plc (Airtel Africa), and contribute around 30% of consolidated EBITDA.

As per the report, there is some uncertainty related to spectrum purchases and the funding for further 5G investments, but the agency still expects Airtel to maintain leverage measures that are consistent with an investment grade rating. “This expectation is based on the trajectory of the company's profitability and the cash flow savings accruing from the moratorium of statutory dues payable to the government. The company's leverage, as measured by adjusted debt/EBITDA, also dropped to around 3.0x as of 31 March 2022 from 3.8x in 2021,” it says.

The brokerage expects investments in 5G spectrum, if an auction occurs over the next few months, will not worsen the company's leverage profile. It opined that the company will largely fund its participation with cash and cash flow from operations and also has additional calls on its remaining balance under the rights issue (or up to ₹15,800 crore billion).

On Thursday, shares of Bharti Airtel moved in a narrow range and closed 0.73% higher at ₹693.35 apiece on the BSE.