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Will the Rs 21,000-cr fundraise end troubles for Sunil Mittal-led Airtel?

Will the Rs 21,000-cr fundraise end troubles for Sunil Mittal-led Airtel?

Sunil Mittal says Airtel has been loaded with extraordinary debt due to AGR and spectrum payments. But, he thinks there's an opportunity to accelerate growth, and for that Airtel has to lower its debt.

Airtel Chairman Sunil Bharti Mittal Airtel Chairman Sunil Bharti Mittal

A day after Airtel announced its plans to raise Rs 21,000 crore through a rights issue, its Chairman Sunil Bharti Mittal interacted with investors over the company's in-house video call service. Mittal laid out Airtel's plan for capital raising and touched upon some issues bothering the telecom sector for a long.

In his 51-minute interaction, Mittal said the key reason for raising the capital is to bring down Airtel's debt. "The leverage in the company bothers us. We have been loaded with extraordinary debt, which we couldn't have imagined one year back, of AGR [adjusted gross revenues] and spectrum payments. We believe there's an opportunity to accelerate our growth path now, and for that, we want to lower our debt, and have access to capital as and when we need," Mittal told investors.

As per financial services firm Jefferies, Airtel's gross debt stood at Rs 1,68,832.9 crore at the end of the June 2021 quarter, which was 16 per cent higher than the same quarter last year. The spike in Airtel's debt, as elaborated by Mittal, is on account of AGR dues, which have risen out of the lost case against DoT (department of telecommunications).

Also read: Bharti Airtel to raise up to Rs 21,000 cr through rights issue

But reducing debt is one part of the story; a lot many things have to fall in place for Mittal's plan to work. Take tariffs, for instance. At the moment, Airtel is charging a premium over Reliance Jio. Although the telco has recently hiked the minimum recharge plan from Rs 49 to Rs 79, it can't go beyond a point, and this was acknowledged by Mittal.

"In a limited way, we have been doing [raising tariffs] it. We moved to Rs 49 and then to Rs 79 on an all India basis. Can this go to Rs 99 eventually? My answer is emphatic yes. The question is when. We are bound by the market forces. We cannot be an outlier beyond a point. You can have some premium given the strength of your brand but you cannot go beyond a point where it starts to hurt you. We will be happy to take first steps, which could be first compared to others," he said.

"Last year, Airtel was reluctant to take the first step in hiking tariffs. It was waiting for Vodafone Idea to make the first move but somewhere down the line, they realised that it has to chart its own path rather than depending on a weak player," says an analyst.

India is a price-sensitive market. A bulk of the customers (over 90 per cent) use prepaid phones, who would switch to a service provider offering lower tariffs. "Unless Jio increases the tariffs; it's perhaps the end of the road for Airtel in moving up the tariffs," adds the analyst.

Mittal said that Airtel's spectrum pool is sufficient to serve customers for many years to come without spending more money on the spectrum. "We have the largest spectrum pool in the county. We bought a lot of spectrum, we renewed a lot of spectrum and we bought spectrum from Tatas, Videocon, Telenor, and Aircel that is helping us serve our customers. Other than the 5G spectrum, which we will hopefully secure at a reasonable price in the coming year, we are pretty much done on spectrum," Mittal said.

But 5G auctions could make Airtel's debt go higher again. How? Telecom regulator TRAI has kept the pan-India reserve price for 5G spectrum at Rs 492 crore per MHz (megahertz) in the 3.5 GHz (gigahertz) band. In order to provide 5G, each telco would need about 100 MHz of spectrum, which would cost them over Rs 49,000 crore each. Mumbai-based brokerage Motilal Oswal has an estimated Capex of Rs 1.3-2.3 lakh crore for the entire sector to roll out pan-India services.

Ahead of the impending 5G Capex, Mittal was confident though. "We have always been ahead of the Capexgame. I feel that as we go forward, per-user consumption is not going to exponentially grow from 16 gigabytes [per user per month], which is already a global record. We believe there's enough capacity that's been created to now generate rewards back for us. In the event of more customers suddenly coming into the Airtel fold, we are in a good shape to carry them through our fibre and mobile network. I don't see any reasons for us to be worried about," he said.

Despite Mittal claiming that the worst is over in terms of tariff wars; the actions of the financially strong Jio is going to pretty much decide the tariff structure and the Capex requirements of the industry, and that's going to keep Airtel on the edge.

Also read: Bharti Airtel will not shy away from tariff hikes: Sunil Mittal

Published on: Aug 30, 2021, 9:57 PM IST
Posted by: Manoj Sharma, Aug 30, 2021, 9:48 PM IST