S&P Global revises Bharti Airtel outlook to 'stable' from 'negative'

Ratings agency S&P Global on Thursday revised Bharti Airtel’s outlook to “stable” from “negative,” on the back of the company's operating fundamentals and superior leverage management.

“The stable outlook reflects our view that Airtel will actively manage its leverage such that its ratio of funds from operations (FFO) to debt will stay well above 20% on a sustained basis, while maintaining its competitive position,” S&P Global said in a statement.

The ratings expects Airtel’s upcoming mega funds raise via rights issue to alleviate the likely impact from upcoming 5G spectrum liabilities, which is necessary for the telco’s competitiveness.

“We believe the rights issue aims to preemptively build financial capacity for Airtel ahead of upcoming 5G investments, given the absence of other immediate funding needs,” it added.

S&P said Airtel’s “improving operating fundamentals should improve its margins and Ebitda” and mitigate the potential effect on leverage from expected 5G spectrum investments. It added that Airtel’s upcoming rights issue also mitigates this risk.

It expects India’s second-largest telco to “continue improving” its operational performance. So much so, it estimates Airtel’s adjusted Ebitda to rise 16%-18% in FY22 and 9%-11% in FY23.

The global ratings agency has affirmed its 'BBB-' long-term issuer credit rating on Airtel and the 'BBB-' issue rating on the telco’s senior unsecured notes. Further, it has also affirmed “the 'BB' issue rating on the subordinated perpetual securities (PERPS)” it guarantees.

S&P Global also expects the momentum in Airtel's Indian mobile ARPU growth to pick up after slowing in recent quarters.

Besides, Airtel, it said, had also raised entry-level postpaid plans for corporate users and hiked its base prepaid rates by 61% in a clear bid to boost ARPUs.

S&P Global added, India’s 5G roadmap and Airtel’s corresponding 5G spectrum investments remained uncertain. It, in fact, expects any 5G investments to weigh on the company's credit metrics, given the lag between investment and returns. “The 5G spectrum auction is likely to happen in the first-half of 2022, and at current reserve prices, it could cost the company close to Rs 500 billion for an entire spectrum block of 100 Mhz.”