Intense competition in the telecom space as well as huge investments have left a “limited headroom” for Bharti Airtel and Reliance Industries to avoid a ratings downgrade, said global ratings agency Standards & Poors.
Intense competition in the telecom space as well as huge investments have left a “limited headroom” for Bharti Airtel and Reliance Industries (RIL) to avoid a ratings downgrade, global ratings agency Standards & Poors (S&P) said on Friday.
S&P said Bharti (BBB- rating) has been hit with a weaker than expected operating performance in Q3 FY 2016-17 due to free offers by RIL-owned Reliance Jio Infocomm (RJIO) and expectations of continued weakness amidst intense competition has left it with a limited headroom. On the other hand, if RIL, which has made significant investments in oil & gas, petrochemicals and telecom, goes for huge investments or its performance weakens, then it could face a ratings downgrade.
Speaking at a concall S&P’s senior director of corporate ratings Mehul Sukkawala said: “Rating headroom for Bharti is limited because of two factors and this has happened over the last four months or so. One is clearly the competition with RJIO coming in and that has reflected in the Q3 FY’17 performance, which has been weak. It has actually been weaker than what we were expecting and we believe that Q4 FY’17 will also be weak and the competition will remain in FY’18 also. So we are expecting revenue to register potentially some decline and also the margins to decline, but as of now we are factoring it to be a FY’18 phenomenon and FY’19 onwards kind-of some recovery starting because eventually Reliance has invested a lot of money so they also need to recover their investments. So eventually we expect the market to improve”.
On RIL, S&P said it expects the firm’s performance in FY’17 to be its “weakest”. “Their ratios are above our triggers and that’s because they are right now in a phase where they have completed most of their investments, whether you talk about oil & gas, petrochemicals and telecom also they have invested so much, where we have yet to see cash flows,” Sukkawala said.