Fitch rates Bharti Airtel at BBB-; outlook stable

New Delhi/ Singapore: Fitch Ratings on Tuesday affirmed India-based Bharti Airtel's Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BBB-' with the outlook on the IDR as stable.

"The stable outlook reflects our belief that revenue from Bharti's Indian mobile segment may recover on higher data volume and its African and enterprise business segments will continue to expand. We believe India's tariff levels are unsustainable in the medium- to long-term in light of the low return on investment for telcos. In addition, Bharti is committed to an investment-grade rating and may explore stake sales in non-core assets to support its balance sheet," Fitch said.

It said Bharti's rating reflects its diversified and integrated business profile, with operations spanning mobile, fixed-line, digital TV, tower and enterprise sectors in India as well as mobile operations in Sri Lanka and 14 African markets.

"Bharti will increase its Indian mobile revenue market share to around 35%-36%, subject to its successful acquisition of Tata Group, despite high competitive intensity in the country's mobile sector. A further increase in competitive intensity could weigh on the company's ratings, as it has low rating headroom."

Fitch said, Bharti's IDR reflects its market-leading position in India, solid spectrum portfolio and diversified and integrated operations that are likely to help it withstand intense competition in India's mobile segment.

"We expect continuous growth in its African and enterprise business segments to offset the challenging environment in India's mobile and home business operations."

However, Fitch has forecast continued negative free cash flow (FCF) in FY19 (FY18: negative Rs 71 billion), as Bharti's cash flow from operation (CFO) of Rs 240 billion-250 billion will be insufficient to fund its large capex requirements.

"The company is likely to invest about Rs 300 billion-320 billion during FY19, including core capex of Rs 260 billion and around Rs 55 billion for deferred spectrum payments. Bharti increased its FY19 capex guidance to Rs 260 billion (FY18: Rs 240 billion), to strengthen its 3G/4G networks to address rising data traffic. It has low network utilisation and sufficient spectrum assets to service fast-growing data volume."

It said, relative to other regional investment-grade telcos, Bharti is exposed to significantly higher price competition in its home market, which is offset by its solid market position in India's mobile industry as well as diversified and integrated operations.

However, its FCF is likely to remain negative on rising capex requirements and intense competition in the country's mobile market.