HYDERABAD: Close on the heels of Reliance Communication’s debt debacle, warning bells have gone off on Bharti Airtel Ltd, which is showing signs of strain for some time now.
On Tuesday, rating firm Moody’s downgraded Bharti’s senior unsecured rating from Baa3 to Ba1 citing uncertainty over profitability, cash flows and elevated debt levels.
“The rating outlook is negative. The downgrade reflects uncertainty around the company’s profitability, cash flow situation and debt levels can improve sustainability and materially, given the competitive dynamics in the Indian telecoms market”, said Moody’s Vice President and senior credit officer Annalisa DiChiara.
According to Moody’s, Bharti reported Ebitda of Rs 26,500 crore for the 12 months ending December 2018, representing a 15.5 per cent year-on-year contraction. Moreover, the profitability of its core Indian mobile segment remained low, generating just Rs 9,800 crore over the same period.
“A significant recovery in cash flow from the core Indian mobile segment is needed to strengthen the company’s credit quality and support greater financial flexibility,” DiChiara said.
Although debt levels may fall if the company raises capital, weak cash flows from its core mobile operations will likely keep leverage elevated, Moody’s noted.
The Indian telecom industry has been in the trouble zone with falling Arpu (average revenue per user) and high capital expenditure to beef up telecom infrastructure to support 4G services anticipating high data usage. The entry of Reliance Jio, which spent a staggering $31 billion—the largest-ever investment made by any Indian telecom firm in such a short span—further roiled telcos with its free-for-life call services, triggering a price war, and caused losses for incumbent players, including Bharti, which was the leading operator at that point of time. Consequently, telcos’ NPAs shot up to 8.7 per cent in FY17 from 5 per cent the previous year.