Bharti Tele gets S&P rating

Standard & Poor's Ratings Services yesterday assigned a BB corporate credit rating to Bharti Tele-Ventures Ltd. The outlook on the rating is stable.

The rating is supported by the company's established customer base in the wireless sector, and improving profitability and cash flow measures, an S&P statement issued in Singapore said.

These strengths are, however, partly offset by the company's aggressive expansion plan, intense competition, and regulatory uncertainty in India's telecomsector.

Bharti is one of the leading integrated telecom operators in India, with a customer base of 6.5 million mobile subscribers and 636,625 fixed-line customers, as on March 31.

"India's wireless market is highly competitive and fragmented, with about 15 operators. Increased competition may emerge through further price cutting by existing players to gain market share, and this could pressure Bharti's future profitability and cash flows," said S&P's credit analyst Yasmin Wirjawan, associate director in the corporate and infrastructure ratings group.

"In addition, any near-term improvement in the company's credit measures will be limited by the company's expansion plans," she added.

Bharti has expressed interest to acquire some of the smaller wireless operators amid the ongoing consolidation in the telecom industry and these acquisitions will be partly financed by debt.

S&P expects negative free cash flows in the near term, which will limit the company's ability to reduce its leverage position. The company has budgeted annual capital spending of about Rs 3,000 crore for the near-term, and these funds will largely be used to expand cellular network coverage and upgrade network capacity.

Bharti has about 20 per cent share in the wireless market, and its subscribers have grown at a significant compound annual growth rate of 121 per cent in the past five years, higher than the industry growth of 95 per cent in the same period.

The rating agency expects the company's subscriber growth to remain strong in the near to medium term given the considerable growth potential in the domestic subscriber base.