“The outlook change to positive reflects Bharti’s improving operating performance and credit metrics which, if sustained, could support an upgrade to investment grade within the next 12-18 months,” Annalisa Di Chiara, senior vice president at Moody’s, said in a statement.
The Airtel stock ended 2.35% higher at Rs 759.50 on the BSE Tuesday.
The development comes close on the heels of Sunil Mittal-driven telco announcing a 20-25% increase in prepaid mobile tariffs which, according to analysts, would augment the service provider’s financials in a significant way.
Di Chiara said the continued expansion of profitability, particularly at its core Indian mobile business, together with a steady reduction in its balance sheet debt, is needed to mitigate the potential effect on Bharti’s credit metrics of significant investments in the fifth generation (5G) technology and the compounding growth of deferred liabilities during the moratorium period.
On Monday, Crisil Ratings too indicated that the tariff hike would enable the telecom carrier to invest in rolling out 5G mobile services over the medium term.
The New York-based firm also expects that investments in 5G spectrum would not worsen the company’s leverage profile in case an auction is slated in the first half of 2022.
The telco is expected to spend around Rs 37,000 crore in the auction, which according to Moody’s, would be partially funded by proceeds from additional calls for the rights issue.
The telco reported a 27% increase in its consolidated earnings before interest, taxes, depreciation, and amortization (Ebitda) to Rs 27,200 crore for the six months ended 30 September, 2021 compared with the same period in 2020.
Moody’s expects Airtel’s consolidated adjusted Ebitda to increase towards Rs 57,000-58,500 crore by the end of fiscal 2022, indicating a near 25% increase over the previous fiscal.
The government’s recently-announced reform package for the financially stressed telecom industry, according to Moody’s, would not only help strengthen Airtel’s cash flow, but will help ensure the longer-term health of the sector.
The firm added that a downgrade would remain unlikely over the next 12-18 months, given the recovery in telco’s operating performance and the positive outlook but added that it could return the outlook to stable if there would be a reversal in the company’s profitability.
