Moody's Investors Service on Friday affirmed Bharti Airtel's Ba1 corporate family rating (CFR) and senior unsecured rating and changed outlook to 'stable' from 'negative', citing improvement in profitability at telco's Indian mobile business and staggered payment resolution related to adjusted gross revenue (AGR) dues.
The US-based rating agency said that Bharti Airtel's profitability has increased due to moderation in industry competition, rise in its 4G customer base, and a tariff hike from December 2019.
"The ratings affirmation and change in outlook to stable reflect improving profitability at Bharti's core Indian mobile business, because of a moderation in industry competition, an increase in its 4G customer base, and a tariff hike from December 2019," says Annalisa DiChiara, a Moody's Senior Vice President.
DiChiara added that the staggered payment resolution related to AGR liabilities is also a positive development. "Overall, the company's operating flexibility is improving and will benefit from a gradual expansion of profitability, which will provide a buffer against any material deterioration in credit measures and support a steady deleveraging," DiChiara said.
On 1 September 2020, the Supreme Court announced the verdict on AGR, allowing staggered payments over a 10-year period to telecom operators. Moody's views the resolution positively, crystallising Bharti's AGR dues at Rs 43,900 crore and providing a much-awaited resolution stemming from the court's October 2019 judgement.
"The staggered AGR payment plan will help alleviate pressure on the company's cash flow. It also means that some of the proceeds Bharti raised earlier this year to fund the AGR liability, can instead be applied to debt reduction. And according to management, this is actually already underway," it said.
The agency said that it could upgrade Bharti's ratings if its operating performance, which needs to be achieved in conjunction with a material expansion in profitability at its core Indian mobile business. The telco may face rating downgrade if its debt reduction fails to materialise, its earnings and cash flow deteriorate further, or its market share (on a revenue basis) contracts materially, it added.
By Chitranjan Kumar