The affirmation is grounded in Fitch’s expectation of Bharti’s continuous improvement in EBITDA net leverage, driven by robust cash flow growth, and its capacity to fund considerable 5G-related capex alongside shareholder returns.
The rating agency foresees Bharti’s EBITDA net leverage to decrease to around 1.2x by the end of the financial year in March 2024 (FY24) and a further drop to 1.0x by FY25, underpinned by sturdy cash generation capabilities sufficient to support high 5G capex and shareholder remunerations.
Bharti’s prominent and expanding role in the swiftly consolidating Indian wireless and African markets provides a solid foundation for the company’s credit position, allowing high rating headroom.
Forecasts suggest a deceleration in consolidated EBITDA growth in FY24 to 7 per cent-9 per cent, as robust Indian mobile business growth counterbalances a slower rise in the African segment, chiefly due to the Nigerian naira’s sharp depreciation in the first half of FY24. FY25 is anticipated to see a recovery with EBITDA growth rates between 10 per cent-11 per cent.
Bharti and Reliance Jio are expected to dominate 83 per cent-85 per cent of private telcos’ revenue during FY24-FY25, with an increasing market share, projecting Bharti’s position and resilience in the competitive landscape.
Bharti’s Indian mobile segment is estimated to gain 10 million subscribers and experience an 8 per cent-10 per cent rise in ARPU annually in FY24-FY25 due to limited competition. The company aims to attract post-paid subscribers, potentially doubling ARPU as customers shift from pre-paid to post-paid plans.
While high capex is anticipated to continue at around 30 per cent-33 per cent in the near term, positive Free Cash Flow (FCF) is expected to commence from FY25, propelled by increased EBITDA generation.
Slower 5G adoption is expected in the Indian market due to limited business cases. Divergent strategies between Bharti and Reliance Jio might create competitive uncertainties in the medium to long term.
Bharti’s foreign-currency ratings remain subject to the ‘BBB-‘ Country Ceiling, which mirrors transfer and convertibility risks for foreign-currency obligations. A possible upgrade in India’s Country Ceiling to ‘BBB’ could lead to an equivalent uplift in Bharti’s IDR, reflecting its underlying credit quality.
Fitch’s assessment highlights Bharti Airtel’s resilience and strengths in the Indian wireless and African markets, despite regional and operational challenges.