Airtel’s weakening revenues to hurt stable ratings: Moody’s

Airtel announced its third-quarter results early this week with a n11.8% decline in Ebitda


Due to spectrum auction in October 2016, Airtel’s debt increased by $2.2 billion. Photo:
Due to spectrum auction in October 2016, Airtel’s debt increased by $2.2 billion. Photo:

New Delhi: The sharp fall in revenues due to competitive pressure in the telecom sector and elevated leverage will have a downward effect on stable ratings for Bharti Airtel Ltd in the near term as the company witnessed a weak third quarter in the current financial year, according to Moody’s Investor service.

“Any delay in deleveraging will put negative pressure on the rating. Downward pressure could also arise if competition intensifies further in any of its key markets, but particularly for the Indian wireless business, such that its key operations and/or subsidiaries report materially declining margins,” Moody’s said in a report issued on Friday.

Bharti Airtel announced its third quarter results early this week with 11.8% decline in Ebitda (earnings before interest, tax, depreciation and amortization) and 6.3% contraction in revenues on a quarterly basis.

Due to spectrum auction in October 2016, Airtel’s debt increased by $2.2 billion, resulting in swollen consolidated debt to Ebitda ratio of 3.4 times as against 3 times in the quarter ended September 2016. The net profits declined by almost 55% in the quarter on an yearly basis, its highest fall in three years.

“The rating may experience upward pressure if Bharti’s overall credit profile continues to strengthen; in particular, Moody’s would like to see the company reduce consolidated adjusted debt/Ebitda (including deferred spectrum payment liabilities) to below 2.0x, and for consolidated adjusted retained cash flow to adjusted debt to exceed 30% on a sustained basis,” the report further said.

Moody’s also said that any corporate structural changes or sizeable acquisition by Bharti Airtel would be viewed negatively due to its adverse impact on the company’s leverage ratios.

“This primarily reflects declines in ARPUs (average revenue per user) across mobile services—voice and data—as well as a 12.4% drop in data customers QoQ (quarter-on-quarter), as India’s newest mobile operator, Reliance Jio Infocomm (unrated) in its promotional entry proposition—providing all services free of charge—continued to drive intense price competition,” said Annalisa Di Chiara, a Moody’s vice-president and senior credit officer, also Moody’s lead analyst for Bharti

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