Credit Research
z
Challenge
Team Number: 261
CCRA Mentor: Abhishek Singh
Business
Overview
Overview
Management and
Corporate governance
Business Model
Investment
Summary
Bharti Airtel Ltd
Bharti Airtel Limited is a leading global telecommunications company with operations in 17 countries
across Asia and Africa. Headquartered in New Delhi, India. Bharti Airtel ranks amongst the top 3 mobile
service providers globally in terms of subscribers.
Shareholding
Promoters(67.14)
MF(18.53)
FII(6.61)
Insurance
companies(5.69)
Others(2.03)
1984-94
Foundation
Sunil Mittal introduced
push button for the first
time in India. He
launched mobile
services in Delhi in 1995
Key highlights of ’18 in ‘000
Revenue: 8,36,879 (-12.33% from ‘17)
Net Profit: 10,989 (-71.33% from ‘17)
Net Debt: 9,52,285 ( +4.18% from
‘17)
2002
Going public
Bharti enterprises
company was listed on
Bombay Stock Exchange
and National Stock
Exchange of India.
Calculating Ticket Size
Total customer base(X): 413,822
Revenue (Y): 836,879
Ticket Size: Y/X= 2.02
2009
2012
Going overseas
Largest acquisition
In 2009, Airtel
launched its first
international mobile
network in Sri Lanka
Airtel acquired the
African business of Zain
Telecom for $10.7
billion
600
Share Price for 5 years
500
400
300
200
100
0
1/2013
6/2013
11/2013
4/2014
9/2014
2/2015
7/2015
12/2015
5/2016
10/2016
3/2017
8/2017
1/2018
6/2018
11/2018
BSE- 532454| NSE- BHARTIARTL | ISIN- INE397D01024 | Industry- Telecomm-Service
Current Share Price:
(as of 10 Feb,2019)
2017
Rs. 312.35
2019
Merger with Tata
Telenor and Tikona
NCLT approves merger
SEBI approved
of Tata Teleservices
acquisition of Telenor.
with Bharti Airtel
Bharti acquired Tikona
Digital, Partnered with
SK Telecom, Korea
Source: Moneycontrol, Company annual report
Overview
KEY PARTNERS
Business Model
Management and
Corporate governance
REVENUE BREAKUP
VALUE
PROPOSITIONS
Ericcson
Africa
Ericsson will work with Airtel on
creating
strategic roadmap for
evolution
of
next-gen
5G
technology
India
22
27
Cisco
Cost Frugality
Airtel and Cisco have joined forces to
improve customer experience by
taking SON (Self Organising Networks)
collaboration to next level.
Revenue Mix
IBM
Driving Innovation
Digital Airtel
Deal involves IBM India managing
Airtel's Infrastructure and Application
Services
China Mobile
Partnership to work jointly on evolving
high technologies like 5G and
procuring telecom devices and
equipment
51
Mobile Services (73%)
Tower Infrastructure (7%)
Homes (3%)
Airtel Business (13%)
Digital TV (4%)
Employee on Roll
42000+
Contractual Employees
165,748 Mobile Network Towers
298,014 Mobile Broadband Base Stations
4800+
18,000+
Suppliers
200,000+ Shareholders
Open Telecom Platform
KEY PRODUCTS AND
CUSTOMER SEGMENTS
Mobile Services
Voice & Data on 2G, 3G, 4G
technology
Homes Services
Fixed-line telephone and
broadband
Airtel Business
Connectivity, MPLS, IPLC, VoIP,
wholesale voice and data
Digital TV Services
Direct to Home TV
Sales and Distribution
Digital Apps
Wynk Music, Airtel TV
COST STRUCTURE
15000+
Brilliant Network
Investment
Summary
Pan India Distributors
320+ Mn Customers
BUSINESS STRATEGY
Protecting Our
Planet
Enhancing Customer
Experience
Sustainable Community
Development
Energy-efficient designing
in networks, facilities and
data centers
Smart procurement
and process
optimization
Cutting edge network
infrastructure
Source: Company annual report
Overview
Business Model
Management and
Corporate governance
Board of Directors
Chairman
NonExecutive
Directors
Independent
Directors
Chief Executive Officer
11 Members
1 Chairman
1 MD &CEO(India & South Asia)
2 Woman representatives
3 Non-executive directors
6 Independent directors, lead independent director
Investment
Summary
Global recognition
✓ Transparency International
✓ FTI Consulting
✓ Asian Centre for Corporate Governance &
Sustainability
✓ The Institute of Directors
✓ GVC level 1 by CRISIL
“Creating and sustaining a deep relationship of trust and transparency”
Bharti airtel has adopted corporate governance practices in line with SEBI(Listing obligations & Disclosure requirements) Regulations, 2015(Listing regulations)
➢ Corporate governance structure of the company is multi-tiered, comprising governing/managing boards at various levels.
➢ At the apex level is the Board of Directors and various committees, directing highest standards of corporate governance.
➢ At one level below is Airtel Corporate Council(ACC), providing strategic coordination and control. ACC is headed by chairman and comprises managing
directors, CEOs & selected senior management personnel.
➢ The governance structure helps in clearly determining the responsibilities and entrusted powers of each of the business entities.
➢ Board members are from diverse background with skills and expertise in critical areas lie technology, global finance, telecommunication,
entrepreneurship, etc.
➢ Constitution of various Committees for Audit, HR and Nomination, Risk Management, Corporate Social Responsibility, Employee Stock
Option Plans, Stakeholders’ Relationship etc.
➢ Compliance with all relevant laws in letter and spirit, with complete and timely disclosure of relevant financial and operational information.
➢ High levels of disclosures to disseminate corporate, financial and operational information to all stakeholders.
➢ Regularly reviews and establishes effective meeting practices that encourage active participation and contribution from all members.
➢ Hence, the analysis of management and corporate governance structure indicates the company is on solid footing and in sync with the ratings given.
Overview
Business Model
Management and
Corporate governance
Airtel Kenya to merge
operations with Telkom Kenya
Announces acquihire deal with
AuthMe (October 2018):
(Feb 2019):
✓ a Bengaluru based start-up focused on
Artificial Intelligence based solutions,
✓ Aim of driving cutting edge innovation
in the areas of AI, IoT, AR and VR
and is building a world-class team for
the facility.
✓ Airtel has acquired the intellectual
proprietary rights for two flagship
✓ Airtel
Networks
Kenya has
signed
an
agreement
with Telkom Kenya to combine
operations,
including
mobile,
enterprise
and
carrier
services businesses.
✓ The integrated telecom firm will
offer
greater
choice
and
convenience for consumers
Airtel acquires Telenor
(May
2018):
✓ Additional spectrum assets will
offset the liabilities from the
acquisition of spectrum
✓ 43MHz of 1800MHz spectrum
from Telenor will be the primary
benefit to Bharti Airtel
✓ Bharti will take over the deferred
spectrum liabilities, which we will
treat as future Capex
solutions
Airtel plans to put 25k cr on 4G
(Nov 2017):
✓ Airtel has increased its spending by
Rs 5,000 crore from its earlier
budget
✓ Airtel is investing in 4G technology to
build more data capacity in the
network
✓ The move was after TRAI released
download/upload speed were Airtel
ranked 4th
Investment
Summary
Capital expenditure(in Cr)
2021*
2020*
2019
2018
2017
2016
2015
2014
2013
24,258
29,280
30,261
24,526
22,303
19,331
14,641
11,416
12,572
0
10,000
20,000
30,000
40,000
Bharti Airtel is expected to expand $700-800
Million a year over next 2-3 years to expand 4G
services in Africa
INFERENCE
❑ Airtel’s investment to strengthen network with
technology and spectrum will be on high priority.
❑ As per Airtel, content will drive the market in
future. They are investing in building strong
relations with content creating companies.
❑ In short term, price war has forced players to
invest more in loyalty programs and cheap
services.
Source: Bloomberg
Industry
Overview
Industry Overview
Competitive Positioning
Urban and Rural Share of Telephone Subscriptions
Substantial Increase in subscriber base
Tele-density, increased from 18.3 per cent in FY07 to 92.84 per
cent in FY18.
Telecom
44.04%
33.35%
17.44% CAGR in India’s telephone subscriber base
Strong growth in broadband drives internet access revenues Total
broadband subscriptions increased at a CAGR of 60.03 per cent
during FY07–18 to reach 412.60 million.
98.15% of the Industry is dominated by wireless subscriptions
FY11
Mobile
(Wireless)
Fixed- line
(Wireline)
Internet
Services
Urban
400
200
0
●
91.17
Strengths
01
10000.00%
9000.00%
●
1192.04
92.84
1206.22
92.98
1194.58
83.36
1058.86
79.38
996.49
75.23
933
73.32
898.02
951.34
70.89
846.32
36.98
600
205.86
18.23%
300.49
26.22%
429.72
800
52.74
1000
621.28
1200
78.66
Sector’s gross revenue grew from US$ 32.05 billion in FY08 to US$
39.49 billion in FY18.
Telephone subscribers
(in millions)
Tele-density
55.96%
66.65%
India is Largest consumer of mobile data globally.
1400
FY19*
8000.00%
●
7000.00%02
Weakness
●
●
6000.00%
5000.00%
4000.00%03
●
●
Opportunities
3000.00%
●
●
●
Rural
Urban
Rural
High Government policy support for ease of doing business and
increasing digital connectivity across the country.
Rising Income and growing rural market fuels the demand
Higher FDI inflows.
Dual Financial stress: Heavy Debt and falling revenue
High price of spectrum (highest in the world)
Lack of investment in infrastructure capacity building
Increasing mobile subscribers and Rising internet penetration
Untapped rural markets
Growing Cashless Transactions
Development of telecom Infrastructure & equipment market
2000.00%
1000.00%
0.00%
●
Threats
●
●
Domination by Jio via tariff cuts and prime membership
Decline in average revenue per user due to increasing competition.
Regulatory: Political and Economic uncertainties across regions
Source: ibef.org, dot.gov.in, trai.gov.in
Industry Overview
Subscriber base(in Mn)
Q3'19
284.22
387
281.1
Q2'19
332.76
422
Q1'19
348.52
443.1
Q4'18
308.12
434.1
Q3'18
294.03
409.2
161
Q2'18
285.95
397.7
138.62
0
200
BhartiAirtel
Competitive Positioning
ARPU(in Rs.)
200
156
150 145
252.25
215.26
186.56
100
Revenue(In cr.)
123
114
137
116
105
135
131
130
105
100
104
88
89
100
50
Vodafone Idea
RelianceJio
20%
20%
0
Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
BhartiAirtel
VodafoneIdea
RelianceJio
Jio is enjoying highest ARPU among the peers although
ARPU of the whole industry seems to be falling
5000
Data usage is on rise due to increasing digital
content and bundled offers. But Reliance Jio is the
undisputed leader in terms of market share.
EBITDA(In cr.)
EBITDA Margin(%)
4208.7
4053
4000
3509.1
3000
2628
2000
3573
2942.8
2694
3147
2760.3
2146.8
1443
1000
50
38.2
40
1949.8
1136.8
461
30
20
10
34.4
23.5
32.6
37.8
38.7
28.4
26.3
38.7
39
20.9
19.1
9.7
6
Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Airtel
Jio
Vil
Airtel’s EBITDA Margin sees a continual drop over
the years just in contrast to Jio’s increasing margins
0
0
Q2'18
In terms of mobile service business in India, for the
first time Jio overtook Airtel in terms of Revenue.
BhartiAirtel
60%
400
600
800 1000 1200
VodafoneIdea
RelianceJio
Subscriber base saw a drop of 48Mn for Airtel in Q3 of
2019 when ARPU increased from 100 to 104
132
154
Data usage(Market share in %)
Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
Airtel
Jio
Vil
Airtel’s EBITDA is decreasing even while revenue
remains almost constant which implies high OpEx
compared to the competitors
Source: Company Annual reports
Financial
Overview
Net Debt/Equity ratio
1.5
1.08
1.25
1.35
1.37
1
65415.8
111333.5
Less: Cash &
Equivalents
(462.6)
(4788.6)
100000
(10.5)
(211.9)
Net Debt(A)
64942.7
106333
Equity(B)
102860.9
69534.4
Equity & Net
Debt(C=A+B)
167803.6
175867.4
Gearing
Ratio(=A/C)
38.7%
60.5%
Net Debt to Equity ratio has been consistently rising over the
years with debt contributing nearly 60% to the total capital
employed in FY18 on consolidated basis.
2.08
2.46
2.66
4
3
2
0.5
50000
0
FY15
Less: Term
deposits with
banks
3.19
FY16
FY17
FY18
❑ Company can either refinance the debt
or sell stake in its various instruments
for repaying the debt. Despite selling its
stake in DTH and tower arm business
Bharti Infratel, its leverage ratio
continued to deteriorate.
❑ Further, Qatar investment authority, has
announced its intentions of investing
$200Mn through a primary equity
issuance in Airtel Africa Ltd., reducing
the subsidiaries debt to $3.5Bn. In
October last year, Six large investors
including Warburg Pincus and Softbank
have invested $1.25Bn through
primary equity.
❑ Airtel Africa is expected to do an IPO in
June or July 2019 which will provide
financial flexibility.
95289
Borrowing
Net Debt
150000
91400
CONSOLIDATED(in
Cr.)
83510
STANDALONE(in
Cr.)
Liquidity Analysis
Financial Analysis
66842
Capital Structure-1
0
1
0
FY15
FY16
FY17
FY18
Net Debt(in Crore)
Net Debt to EBITDA(times)
❑ Net Debt has been increasing due
to the borrowings done for capital
expenditure towards enhancing the
network capabilities in India and
expanding its services in Africa.
❑ Further, due to the pricing pressure
on margins in India business is
hurting the EBIDTA margins,
exacerbating the situation.
❑ Increasing net debt coupled with
falling interest coverage ratio
signals strong potential future
distress.
Source: Company Annual reports
Capital Structure-2
Liquidity Analysis
Financial Analysis
Maturity profile of Term
borrowings
LIABILITIES (in Mn Rs.)
INR (60352)
2000000
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
Total borrowings
=Rs. 1,12,165.4Cr
EURO (13995)
Others (4085)
2014
2015
Total Current Liabilities
2016
2017
2018
➢ Total Liabilities have been growing at a CAGR of
10% while Total Non Current Liabilities at a
CAGR of 11% and Total Current Liabilities at 8%.
➢ However, in the last fiscal Total Current liabilities
have increased by 23.29% and Total Non
Current Liabilities have declined which suggest
that company is on a trajectory to repay it’s long
term debt and is trying to timely execute it’s deleveraging plans
49957.6
50000
40000
30000
29865.5
26425.3
20000
5916.9
10000
0
FY19
Total Non Current Liabilities
Total Liabilities
Debt Due(in Crores)
60000
USD (33731)
➢ Nearly 53% of consolidated total
borrowings are in INR, and rest in other
global currencies.
➢ The group is trying to finance itself from
diverse sources of credit to keep check on
cost of capital, exploiting lower interest
rates in other currencies(especially USD &
Euro).
➢ It also highlights the exchange rate
fluctuation risks of the borrowings.
➢ The group manages its interest rate risk
through various forms hedging including
entering into interest swap contracts as and
when required.
FY20
FY23
After FY23
Year in which repayment is due
➢ The maturity profile of group’s term
borrowings depicts that in the current fiscal
it has to pay around Rs.26,425Cr., which
decreases to around Rs.5,916Cr in FY20.
➢ Since, majority of borrowings are to be
paid in or after FY23, it gives the company
enough cushion to enhance the efficiency
of the operations and expand without
worrying about the borrowings in near
future.
Source: Company Annual reports, Bloomberg
Capital Structure
Standalone
Consolidated
Gross revenue
EBITDA
Liquidity Analysis
Financial Analysis-1
PAT (Figures In Rs. Crores)
Gross revenue
EBITDA
PAT
ARPU (in Rs.)
(Figures In Rs. Crores)
180
160
4621
34845
6077
36132
3800
34149
1099
29540
140
13201
7780
24624
21801
79
79.2
6603
17442
120
100
154
145
123
116
105
100
104
80
96197
96519
95589
60
83688
60689
60473
62461
53899
40
20
FY15
FY16
FY17
0
-9926
FY18
FY15
FY16
FY17
Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19
FY18
❑ Gross revenue, EBIDTA & PAT seem to be going southward due to intense local competition and dwindling ARPUs.
❑ During Q3 FY19, consolidated net profits declined to Rs.86 Crore (72% decline YoY) despite being helped by one time gain on the account of
“deconsolidation of Airtel Payments bank”, continuing the downward trend in the profits for 11th straight quarter. Although quarterly profit rose
marginally by 0.4% to Rs.20,519 Cr., operating profit fell 0.4% to Rs.6,218Cr.
❑ For the first time in last 10 quarters, the company saw a positive rise in ARPU with a 4% rise from Rs 100 in Q2’19 to Rs.104 in in Q3’19. Should this trend
continue, this will help the company some respite from the continuous losses.
Source: Bloomberg Quint, Company Annual reports
Capital Structure
Profitability Analysis
35.92
22
52.00
50.40
47.95
21
6.29
4.8
FY15
FY16
Gross Profit margin(%)
3.98
FY17
12.93
20
19
1.31
FY18
43.60
46.80
44.20
46.00
45.00
19.6343
14.3
16.15
50.00
48.00
46.50
20.3186
17.02
47.95
44.00
43.60
42.60
20.5192
36.86
20.4225
35.09
Productivity Analysis
20.08
34.96
Liquidity Analysis
Financial Analysis-2
18
42.00
40.00
38.00
Q3'18
Q4'18
Q1'19
Q2'19
Q3'19
Operating Profit margin(%)
Net Profit Margin(%)
❑ Consolidated revenue has been consistently decreasing from the last
two financial years(-12.3% YoY), due to the de-growth in India & South
Asia region(-13.5% YoY), offsetting the revenue growth in the Africa
region (4.9%YoY).
❑ Although operating expenses were reduced (9.2% YoY), consolidated
EBIDTA and EBIDTA margins declined by 14.5% & 2.3% YoY respectively.
❑ Finance costs were also higher due to the debt form spectrum related
costs and lower investment income.
Total Revenue(in Rs.'000 Crores)
Capex Productivity(%)
Opex productivity(%)
❑Last few quarters have seen marginal improvement in revenue owing to gain
in one time exception items. Opex productivity remain constant QoQ in
Q3’19, highlighting the company’s efforts in managing network costs .
❑Capex productivity is declining owing to the capital investments being made
by the company to enhance its future capabilities.
Source: Company Annual reports
Capital Structure
Return Ratios
8.32
140000
6.45
4.64
100000
0.33
60000
0.45
FY16
FY17
RoE
FY18
RoCE
❑ Higher investments incurred to build future
data capacities and continued pricing
pressure in India have resulted in the decline
of RoCE.
❑ As the asset base is increasing with the
dwindling EBIDTA, ROA has taken a
downturn.
❑ Due to falling Net Profit Margins and Asset
Turnover Ratio , ROE is continuously
declining
40000
20000
0
12
0.5
10
0.4
6
0.3
4
0.1
0
FY15
FY16
Asset(in Crore)
FY17
14
0.6
0.2
168277
1.6
EPS
11.35
10.08
8
0.4
80000
2.88
RoA
0.48
120000
1.66
FY15
0.64
160000
5.66
2.74
0.7
161302
8.05
9.44
153886
8.52
Asset turnover
180000
98526
10
9
8
7
6
5
4
3
2
1
0
Liquidity Analysis
Financial Analysis-3
FY18
4.51
2
0
-2
-4
-6
FY16
FY17
FY18
FY19E
FY20E
-1.75
-3.33
EPS(in Rs.)
Asset turnover ratio
❑ Higher investments incurred to build future data
capacities is leading to increase in total assets .
❑ Non-Current Assets have seen a 0.93% increase
while Current Assets have seen a
phenomenal 84.02% increase which is attributed
to a magnificent increase in investments.
❑ The company’s ability to generate sales with it’s
assets is falling continuously due to larger than
expected Capital Expenditure.
❑ Over the years, EPS seems to be falling
due to reduced earnings from
continuous pricing pressure
❑ Since, ARPU seems to stabilize it should
improve earnings and hence EPS in
near to mid future
Source: Bloomberg, Company Annual reports
Capital Structure
Liquidity
50000
40000
30000
20000
10000
0
Current liability(in Cr.)
78240
60000
63459
70000
58660
80000
Interest coverage ratio(times)
0.5
0.45
0.43
0.4
0.39
0.35
0.33
0.3
0.29
0.25
0.2
0.15
0.1
0.05
0
FY15
FY16
FY17
FY18
64435
90000
Liquidity Analysis-1
Financial Analysis
Current ratio
9
8
8
7
6
DSCR
7
7.06
5
6
5
5.2
4
4.37
3
2
2
1
1
0
0
❑ Although Current ratio increased in FY18 to 0.43(48% YoY), current
liabilities have also been consistently increasing, putting pressure on
short-term liquidity.
❑ The company also made its maiden unsecured listed NCD issuance of
Rs.3,000 Crore, apart from completing stake sale of Bharti Infratel in
secondary market to fund the liquidity.
❑ With more than Rs.13000Cr cash and marketable securities in hand,
liquidity profile remains robust, with a critical watch on timely
deleveraging of balance sheet and increasing operating income.
FY17
FY18
4.39
4
3
FY16
8.07
3.44
FY16
FY17
FY18
DSCR: FCFF/( Interest + Principal)
❑ Falling Interest Coverage Ratio indicates the declining ability of Airtel to
meet it’s interest obligations. If this trend continues Airtel will lose it’s
financial flexibility to receive more debt in future.
❑ Airtel needs to take initiatives in deleveraging and growing operating
profit like the one taken through it’s business stake sale in Africa business.
❑ Debt Service Coverage Ratio of Airtel indicates the declining cash flow in
order to meet it’s debt obligations. There are speculations that this ratio
may further decline owing to technological changes which could
necessitate fresh investments or require existing networks to be
overhauled.
Source: Bloomberg, Company Annual reports
0.3
Capital Structure
Financial Analysis
CFO/Total Debt
CFO/EBIDTA
1
0.29
0.29
0.28
0.28
0.27
0.26
0.25
0.25
0.24
0.23
Liquidity Analysis-2
ALTMAN Z SCORE CALCULATION
2019 Q3
0.89
EBIT
55390
0.6
Total Asset
2505816
0.4
Net sales
836879
0.2
Market value of equity
12,49,187.5
Total Liabilities
18,63,055
Working capital
-558210
Retained earnings
691110
0.73
0.8
0.66
0
FY16
FY17
FY18
❑ The company’s ability to take on more debt
has marginally increased from the past fiscal
but over the years this ratio has been
consistently falling. This in turn is
constraining it’s ability to take on more debt.
❑ On an isolated basis this ratio is still low and
suggests that financial risk is still too high
FY16
FY17
FY18
FCFF(in Cr.)
14000
12451
12000
10000
ALTMAN Z-SCORE
11404
8514
8000
6851
5016
4000
2000
0
FY13
1.27
8247
6000
❑ FCFF has been reducing mainly due to
increase in Capex from expanding services
in Africa and increased network costs. This
puts the company in a precarious position.
(in Million Rs.)
FY14
FY15
FY16
FY17
FY18
Altman Z-Score of less than 1.8
indicates that the liquidity
profile of the company is
deteriorating.
Credit
Rating Model
Credit History
Key Rating Drivers
Credit rating
summary
Probability of Default
RATING AGENCY
CURRENT RATING
PREVIOUS RATING
COMMENTS
CRISIL
AA/Stable
AA+/Negative
CRISIL has downgraded its ratings on the
long-term bank facility and non-convertible
debentures. Downgrade is due to pricing
pressure, weaker cash accrual and
increased leverage
MOODY’S
Ba1/Negative
Baa3/RUR
Rating lowered to junk due to weak cash
flows. This is the first time Airtel being rated
below investment grade. This will increase
cost of borrowing for Airtel.
FITCH
BBB-/Stable
BBB-/Stable
An Investment rating is given with
expectation of tariff recovery happening in
2019. Fitch expects Airtel to sell assets to
raise money and thus reduce leverage.
ICRA
AA/Stable
AA/Stable
-
S&P
BBB-/Negative
BBB-/Stable
Downgrade is due to elevated capex,
increased price competition and weak
financial performance
Source: Credit rating agencies reports
Credit History
1
2
INITIATIVES
TO
DELEVERAGE
BALANCE SHEET
INVESTMENT
IN LATEST
TECHNOLOGY
1
2
UP
STRONG
TAILWINDS
FROM AFRICA
Credit rating
summary
Probability of Default
IMPROVING
OPERATING
PERFORMANCE
OF NON MOBILE
SERVICES
3
4
Key Rating Drivers
DOWN
HIGH OPEX TO
ENHANCE
NETWORK
CAPABILITIES
INTENSE
COMPETITIVE
LANDSCAPE
IN INDIA
3
4
EXPOSURE
TO
CURRENCY
VOLATILITY
TECHNOLOGY
AND
REGULATORY
CHANGES
Credit History
Key Rating Drivers
Probability of Default(in %)Peer comparisionas on 10th Feb
Average probability of default(in %)
0.554
0.533 0.543
0.6
0.453
0.5
0.4
0.301
0.3
0.2
0.1
0.232
0.086
0.017
0.061 0.044
0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E
Average Probability of default has seen a consistent
rise over the years. It has spiked from 0.044% in FY18
to 0.301% in FY19 and is expected to be around 0.45%
in FY21. Falling earnings, reduced margins, combined
with increasing leverage is seen as a detrimental
factor. Higher debt also increases exposure at default
making the company vulnerable.
Credit rating
summary
Probability of Default
18
16
14
12
10
8
6
4
2
0
15.92
6.925
3.053
0.232
Bharti Airtel
VodafoneIdea
Tata teleservices
RelianceComm
Among the peers, Bharti Airtel has the lowest
percentage value of the probability of default with
0.23%. This reflects the strong financial policy of the
company in the past as it has met its financial
obligations timely. This increases the credibility of
the company and reduces its cost of borrowing.
Source: Bloomberg, Company Annual reports
Credit History
BUSINESS RISK
GOOD
❑The company is diversified
geographically with
operations in 14 countries,
although in terms of
revenue only a quarter of it
comes from non-mobile
operations
❑Significant investment to
enhance latest technological
capabilities in 4G and 5G
SOLVENCY
MODERATE
❑ Debt to Equity is around
1.37
❑ Company has taken
initiatives to deleverage
balance sheet through
equity infusion.
❑ Although current ratio has
improved on a YoY basis
still a current ratio of 0.43
is a cause for concern.
Key Rating Drivers
Probability of Default
FINANCIAL RISK
MODERATE
EFFICIENCY
MODERATE
❑Current ratio has improved
to 0.43, but interest
coverage ratio has fallen.
❑Ability to meet debt
payments-Debt
service
coverage ratio has fallen
from 4.39 to 3.44
❑Altman Z-score is around
1.27<1.8,
indicating
liquidity distress.
❑Stable EBITDA margins
around 35% despite falling
net profit margins.
❑RoA, RoE, RoCE are
consistently falling.
❑Capex Productivity has seen
a decline while Opex
productivity remains
constant.
PROBABILITY OF
DEFAULT- GOOD
❑Probability of default is
only
0.023%,
lowest
among the peers.
❑Probability of default in
the
last
fiscal
has
increased with looming
signs of an increasing
default in the upcoming
fiscal years.
OUTLOOK-GOOD
❑ ARPU is expected to
improve
❑ Increasing cash flow
from Africa business will
help the company
stabilize the cash flows
❑ Management is
aggressively focusing on
strengthening it’s
network technology and
acquiring new
companies.
Credit rating
summary
NET CREDIT
SCORE: A
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