Fitch Affirms Bharti Airtel at ‘BBB-‘ With Stable Outlook
Fitch Ratings has affirmed India-based Bharti Airtel Limited’s (Bharti) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB-‘ with a stable outlook.
The stable outlook reflects Fitch’s expectation that Bharti’s EBITDA net leverage will improve amid strong earnings growth and a decline in capex. The rating note stated that Bharti’s rating is supported by its strong market position in the consolidating Indian mobile market.
Bharti’s foreign-currency ratings cannot exceed India’s Country Ceiling (BBB-), which reflects the transfer and convertibility risks on foreign-currency obligations.
“We would probably upgrade Bharti’s IDR to ‘BBB’ if the Country Ceiling were to be raised to ‘BBB’, reflecting our view of Bharti’s underlying credit quality”.
Fitch also affirmed Network i2i Limited’s subordinated perpetual notes at ‘BB’. Network i2i’s subordinated perpetual notes are rated two notches below Bharti’s IDR which reflects their deeply subordinated nature.
“We forecast EBITDA net leverage will fall to around 1.3x in the financial year ending March 2025 (FY25) and 1x in FY26 (FY24: 1.4x). The decline in net leverage will be supported by a rise in operating cash flow on an increase in the monthly average revenue per user (ARPU) and a decline in capex.
“Bharti also has the option to call INR158 billion (USD1.9 billion) of a fully underwritten rights issue, which further supports financial flexibility. We believe that Bharti is committed to maintaining balance sheet strength”.
Fitch expects EBITDA will increase by over 15% in FY25, driven by a rise in ARPU following the tariff increase in July 2024, and 10% in FY26. “We believe that Bharti can increase its ARPU organically as it shifts customers from pre-pay to post-pay and upgrades customers to higher priced data plans”.
Bharti has stated that it aims to achieve a minimum ARPU of INR300 over the medium term (1H FY25: INR233).
Analysts expect Bharti and Reliance Jio, a subsidiary of Reliance Industries Ltd (BBB/Stable, Local-Currency IDR: BBB+/Stable), will continue to dominate mobile market share in India.
Fitch believes both companies will gain further market from the third largest telco, Vodafone Idea, which has struggled to invest in its network due to a weak financial position.
Reliance Jio and Bharti hold a similar revenue market share. However, Reliance Jio held about a 41% market share by subscribers in August 2024, followed by Bharti’s 33% and Vodafone Idea’s 18%, according to the regulator.
Fitch forecasts about a 2% increase in Bharti’s mobile subscribers in FY25 and FY26. Analysts believe the fall in subscribers to 351.6 million 1HFY25 (FY24: 352.3 million) following the tariff increase will be reversed in 2HFY25.
The decline was driven by some customers on low-price tariffs shifting to government-owned BSNL.
“We think this is temporary, as the majority of customers want access to a high-quality network for increased data usage. Bharti’s average monthly data usage rose by 10% yoy to about 24GB a month at end-June 2024”.
Analysts expect capex, including spectrum payments and spectrum prepayments, will fall to about 32% of revenue in FY25 and 26% in FY26 (FY24: 39%).
“We believe capex peaked in FY24, given the significant investment in 5G. We believe 5G-related capex will slow as a significant portion of investment into 5G has already taken place. We expect further investment in 5G will occur when 5G penetration rates increase”.
Capex will continue to include investment in fibre, cables and high-growth segments like cloud. Fitch believes the pace of spectrum prepayment will also slow, as most high interest-rate deferred spectrum liabilities have been repaid.
Fitch forecasts free cash flow (FCF) margin, which includes the discretionary prepayment of deferred spectrum liabilities and dividends, will improve to around 1% in FY25 and 6% in FY26, supported by an increase in ARPU and falling capex. Bharti used its strong operating cash flow to prepay around INR160 billion of deferred spectrum prepayments in total in June 2024 and September 2024.
“We expect 5G adoption to remain slow in India, given limited 5G use cases in the short term. The device ecosystem needs to evolve for higher 5G adoption in the price-sensitive Indian market, given low penetration of 5G devices.
“We expect telcos to price 5G at the same tariff as 4G, with ARPU improvements driven by higher data consumption. Bharti’s 5G user base was 105 million, or around 30% of its overall subscriber base at end-June 2024.
Analysts forecast largely flat revenue at Airtel in FY25, before rising by about 10% in FY26 on a reported currency basis.
The weak FY25 performance is due to significant depreciation of the Nigerian naira, which offsets solid operational performance, including in mobile subscribers and the mobile-money segment.
“We expect weaker profitability in FY25 will be driven by currency depreciation. As a result, we forecast EBITDA net leverage to increase slightly to 1.3x in FY25, before easing to 1x in FY26”, Fitch said. FG Earmarks N47.5bn for Upgrade of 50 Selected Schools
