S&P Global: Bharti Airtel Rating Revised - See Updated Outlook On Telecom Giant

Global credit rating agency S&P has revised its outlook on Bharti Airtel to "positive" from "stable," citing the telecom giant's robust earnings growth and improved financial flexibility. S&P also affirmed the company’s ‘BBB-’ long-term credit rating. The outlook revision is driven by the strong growth prospects for Bharti Airtel’s operations in India, where the company is expected to see significant earnings improvements over the next two years. This growth is primarily attributed to a recent hike in mobile tariffs, which took effect in July 2024, with price increases ranging from 10 per cent to 21 per cent across its mobile plans. S&P forecasts Bharti Airtel’s EBITDA from its Indian operations to rise by 18 per cent-20 per cent in fiscal 2025 and an additional 12 per cent-15 per cent in fiscal 2026, largely bolstered by the mobile segment.

While the tariff increase may lead to some customer churn, S&P expects minimal downgrading to lower-priced plans as Indian consumers have developed strong data consumption habits, making them less likely to reduce their number of SIM cards. For the quarter ending September 30, 2024, Bharti Airtel reported a 10.4per cent increase in average revenue per user (ARPU), reaching INR 233, while subscriber losses remained minimal at less than 1 per cent. Despite challenges in its African operations—particularly in Nigeria, where the local currency has depreciated significantly against the Indian rupee—S&P believes that Bharti Airtel’s strong performance in India will more than offset the decline in its Africa business. The company’s African segment, once contributing over 30 per cent of consolidated EBITDA, is now expected to account for around 20 per cent by fiscal 2027.

Bharti Airtel’s rising cash flows are expected to facilitate its deleveraging strategy. S&P projects that the company’s funds from operations (FFO) to debt ratio will improve to 27 per cent-30 per cent in fiscal 2025, surpassing the 30 per cent threshold in fiscal 2026. This improvement will help the company reduce its leverage and increase financial flexibility. Although capital expenditures (capex) remain high due to the ongoing 5G rollout, S&P anticipates a slight reduction in cash capex for fiscal 2026, following an easing of investment in spectrum purchases. The company’s capex for fiscal 2025 is projected to remain at INR 360 billion to INR 380 billion, with a decline expected in fiscal 2026.

The agency noted the potential risks posed by increasing debt at Bharti Telecom Ltd., the parent company of Bharti Airtel, which had net borrowings of INR 250 billion as of March 2024. While Bharti Telecom's growing debt load is not currently expected to threaten Bharti Airtel’s credit profile, it could potentially place pressure on the subsidiary if dividends are used to service the parent company's debt. S&P’s positive outlook reflects confidence in Bharti Airtel’s ability to continue improving its earnings and maintain a competitive position in the Indian telecom market. However, the outlook could be revised back to stable if the company undertakes more debt-funded investments, capital expenditures, or dividends that deviate significantly from expectations.

A further upgrade in Bharti Airtel’s rating would likely depend on an upgrade of India’s sovereign rating, which currently stands at BBB-/Positive/A-3. Conversely, a negative rating action could result if the company's deleveraging trend falters, or if there is a further deterioration in Bharti Telecom’s financial profile. Overall, the positive outlook underscores Bharti Airtel’s strong performance prospects and the improving financial health of the company, bolstered by its leadership in the rapidly growing Indian telecom market.