Intense competition will persist over the next 12 months as Reliance Jio is expected to remain aggressive in acquiring new subscribers and growing the data market Moody's Investors Service said. The agency added that telcos like Bharti Airtel would launch new plans and tariffs to protect and grow market shares following intense price competition over the next several quarters.
The agency said that Bharti Airtel'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 customer acquisitions organically and through acquisitions.
This competition will occur even though ongoing and transformative consolidation in the sector and Reliance Jio tariff plan will help stabilise the industry's average revenue per user (ARPU) over the longer term, Moody's added.
Moody's has also affirmed Bharti Airtel's Baa3 issuer rating and senior unsecured debt ratings, as well as the Baa3 ratings on the senior unsecured notes issued by Bharti Airtel International (Netherlands) B.V., which are irrevocably and unconditionally guaranteed by Bharti. At the same time, Moody's has changed the outlook on the ratings to negative from stable.
"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. 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," said Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.
In addition, Airtel's total reported debt at 31 March 2017 was Rs 1,074 billion, a rise of around 6.9% year-on-year, and largely a result of higher spectrum liabilities (Rs 439 billion versus Rs 341 billion at year end 2016).
"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," added Di Chiara, also Moody's Lead Analyst for Bharti.
For year-end 31 March 2017, the company's Indian mobile services segment contributed around 59% of consolidated revenues and 64% of reported consolidated EBITDA and remained the key driver of profitability.
Bharti has been able to demonstrate increasing its revenue market share for its India mobile services from to 33.1% at Dec 2017 from 31.6% as at Dec 2016, according to the Telecom Regulatory Authority of India.
"Overall, we expect consolidated adjusted EBITDA to contract around 5% year-over-year, reflecting the competitive pressures existent in the Indian mobile segment and somewhat offset by the stable operating performance of its African operations and its other business segments in India. As a result, we expect Bharti's adjusted debt/EBITDA will increase to 3.5x-3.6x by 31 March 2018. Although, when considering the potential additional 10% stake sale in Bharti Infratel (Infratel, unrated) -- at a similar valuation to its recent stake sale and with proceeds used entirely for debt reduction -- we estimate adjusted debt/EBITDA of 3.4x, which remains at the higher tolerance range for the rating level," Moody's said.
Still, the affirmation of Bharti's Baa3 rating continues to reflect the company's leading market position and strong spectrum portfolio, although Moody's stated that it remains cautious on operating performance over the next 6-12 months
