Moody’s Investors Service has changed its outlook on Bharti Airtel, which is facing an intense competition from Reliance Jio (RJio), to ‘negative’ from ‘stable’, but has maintained the company’s Baa3 issuer rating and senior unsecured debt ratings.
The rating agency also maintained the Baa3 ratings on the senior unsecured notes issued by Bharti Airtel International (Netherlands) B.V., which are irrevocably and unconditionally guaranteed by Bharti.
Moody’s affirmation of Bharti’s Baa3 rating reflects the telecom company’s leading market position and strong spectrum portfolio, even as Moody’s remains cautious on operating performance over the next 6-12 months.
“Leverage remained elevated at year-end, resulting in adjusted debt/EBITDA of 3.3x. We expect Bharti’s profitability to remain under pressure as competition remains at heightened levels over the near-term; as such, we believe that a permanent reduction in leverage to levels more appropriate for the Baa3 rating — such that adjusted debt/EBITDA trends to 3.0x by June 2017 — is unlikely,” said Annalisa Di Chiara, a Vice President and Senior Credit Officer at Moody’s.
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Moody’s said that it continues to expect intense price competition over the next several quarters in the Indian telecoms sector, as operators, such as Bharti, implement plans and tariffs to protect and grow their market shares. According to Moody’s, this competition will occur even though ongoing and transformative consolidation in the sector and Reliance Jio Infocomm Limited’s (RJio, unrated) tariff plan will help stabilise the industry’s average revenue per user (ARPU) over the longer term.
“While Bharti recorded 4.3% growth in reported consolidated EBITDA year-over-year at 31 March 2017, the effects of intense competition in the India mobile services segment were particularly evident in the fourth quarter, as revenues and reported EBITDA for its India mobile services segment fell 11% and 19%, respectively,” added Di Chiara, also Moody’s Lead Analyst for Bharti.
“This was partially offset by the year-over-year EBITDA growth in non-mobile services in India as well as healthy EBITDA growth in Africa,” added Di Chiara.
Moody’s believes the intense competition to continue over the next 12 months as RJio is expected to remain aggressive in acquiring new subscribers and growing the data market and that Bharti’s ability to expand profitability for its core Indian mobile operations relies on the company retaining its higher ARPU subscribers while increasing the pace of subscriber acquisitions organically and through acquisitions.