Credit Research Report

2018-19

Team 242

Mentor – Vikas Jain

 Read Inside…
Executive Summary 003
Company Snapshot 004
Business Description 007
Management & Corporate Governance 012
Industry Overview & Competitive
Positioning 016
Financial Analysis 021
Capital structure 025
Liquidity Performance 028
Rating History 031
Key Rating Drivers 032
Investment summary 033
Credit Rating model 034
 Executive Summary
Business Risk – Excellent
• Diversified presence across geography
and sectors like enterprise segment,
B2B business, digital services, payment
banks, etc
• Effective management strategy in a
competitive and price sensitive market
• Ability to mitigate the technological
risks and regulatory changes
AA
Reaffirmed
Financial & Liquidity Performance - Good
• India business has witnessed a dip in both
revenue and EBITDA over the past 3 quarters
though the decline has flattened out
• Airtel Africa continues to remain robust, hence
the consolidated business has seen an increase.
• RoA and RoE has declined due to decrease in net
income
• Current ratio, quick ratio and FCF has improved
over the last quarter
Solvency and Distance to Default – moderate
• High D/E due to increased Capex over
the years – measures taken to deleverage
• DCSR stumped due to decreasing net
income
• Diversified debt structure and moderate
cost of debt
• Probability of default 0.232% - safe
value
Outlook – Stable:
• Good ability in raising funds
• Financial might to fund Capital Expenditure
and plans for deleveraging
• Strong corporate governance policy in place
- CRISIL has assigned to Bharti Airtel its
Governance and Value Creation (GVC)
rating, viz. CRISIL GVC Level 1 for Corporate
Governance practices.
 Company Snapshot Type: Public(1995) Industry: Telecommunication

Parent Bharti Enterprises (36%) and SingTel

(64%)
Top Segments Mobile Services (50.58%), Mobile Services Africa
(22.04%), Airtel Business (12.4%)
Sunil Bharti Mittal Gopal Vittal Market Cap Rs. 1,24,558.99
Chairman MD & CEO
(India and Traded as BSE:532454, NSE:BHARTIARTL
South Asia)

Raghunath Mandava
MD & CEO
(Africa)
• Leader in India, #1 or #2 in 12 African countries
• Global and national long-distance fibre of
FY 2017-18 over 479,856 RKms
Total Revenue – INR 836.879 Bn • Mobile broadband sites up 61% over the last year
EBITDA – INR 304.208 Bn • Over, 95.3% voice population coverage
EBITDA Margin – 33.83% • Ranked 1st by Transparency International for
Net Income – INR 10.989 Bn
highest standards of Corporate Governance
ROCE – 2.65%

4

1999 Acquired
1997
Became the1st majority stake in JT
mobile service provider mobiles (Karnataka &
in India to cross the AP). Became the largest
1,00,000 customer mark telecom sector provider
in the country
Evolution of Airtel
Since 1995 …
2000 2001
Formed a
strategic partnership Acquired Spice Cell
with Singtel who to enter Kolkata.
invested US$400 Mn Launched cellular
in Airtel. service in Chennai
post acquisition of
SkyCell Acquisition

2002
Went public.
Spread in UP, Kerala,
Uttaranchal,
2003 2011 2012 2014 Maharashtra Punjab
and Gujarat

2005 Launched
Airtel acquisitions in India in the last 7 years service in Assam and
March – Videocon Telecommunications completed Pan India
May – Qualcomm AP’s April – Aircel Dishnet Wireless footprint
India 2017
2015
2007
2016 Established an
2012 Feb – Telenor Communications independent tower
August – Augere Wireless March – Tikona Digital Networks company – Bharti
5
Broadband India October – Tata CMB InfraTel
 Acquired Zain Africa 15
Airtel – Leading presence in Africa operations and Telecom 2010
Seychelles A
2nd largest telecom I
Crosses 50 million
operator in Africa. 2011 R
customers mark
T
Customer base of over Acquires Rwandatel’s
2012 E
91 Mn of which more GSM license in Rwanda L
than 26.3 Mn are data
customers Acquires Warid in Uganda A
2013
and Congo Brazzaville F
3G and Airtel Money Divested tower assets R
in all 14 countries. 10 Operating Companies 2014 I
4G in 9 countries. (2014-2015) C
A
2015 Acquires yuMobile
11.8 Mn Airtel Money
in Kenya
subscribers generating
transaction value of Sells Sierra Leone and J
USD 6,090 Mn on an Burkina Faso’s operations 2016 O
annual basis to Orange U
Acquired Millicom’s operations
Data usage per in Rwanda; Combined operation
R
customer increased to 2017 N
in Ghana with Millicom
1006MBs from 843MBs E
from corresponding Airtel Africa achieves full
year positive PAT for the Y
quarter last year. 2018 6
first time since acquisition
 Airtel Service Portfolio
Business Description Wireless
Services

Vision
To enrich the lives
Value
of the customer Alive, Inclusive,
Objective
and to win Respectful
customers for life Grow market
through an share.
exceptional Grow revenue.
experience
Drive down cost.

Tower
Infrastructure
A Natural
S Intellectual
I O Manufactured
Capital
Capital
R U Capital Social and
R Relationship
T C
Financial
Human Capital
Capital
E E Capital
L
• 165,748 Mobile • 388 Mn spent on
• Deep • 15,000+ Network Towers social activities • 3.3 Mn
V I experience in Employees on
• INR • 298,014 Mobile • 4800+ suppliers MWh of
N digital rolls Broadband Base • 18,000+ Pan
A P
1,028,609
innovation • 42,500+ • 237,893 Optic India Distributors
electricity
Mn Equity Fibre Network • 16,400+ consumed
L U • INR 649,432 • Bold, Contractual • 314.5 Mn
• 9 Mn Home Passes Exclusive contact
T Mn Long- audacious & employee deployed centre agents Litres of
U S term debt honest • INR 99 Mn • 7 Submarine • 200,000+ diesel
communicati Spent on Cable Systems Shareholder
E on approach training • 65 Global Points • 320+ Mn
consumed
of Presence Customers

C B
U
R S
I
E N Obsession Driving Open
A E with Scientific
innovation Telecom
S Brilliant Customers Sales and Cost while platform –
T S Network Distributio Frugality managing New
Digital n
I M
Airtel complexities business
O O
D
N E 8
L
Segment wise performance
Mobile services India and South Asia

➢ Bundled plans with unlimited

voice packs
➢ First to launch 4G in India
➢ Post-paid plans
• MyPlan - customized
(Bn) plans as per customer
usage
Mobile services Africa • Infinity - Options with
unlimited benefits
➢ Pocket-friendly data packs
➢ Recognized as the smartphone
network

(Mn)

Digital TV

➢ Android TV
➢ Universal Remote
➢ MyPlan Customized
➢ Interactive services

9
 Home Services Landline
➢ Attractive plans and offers
➢ Highly reliable services
➢ 24/7 online support
➢ Value-added services
Internet
➢ Introduced ‘V-Fiber’
technology
➢ Up to 100 Mbps speed

➢ Diverse portfolio of services -

Airtel Business voice, data, video, network
integration, data centres, managed
services, enterprise mobility
applications and digital media
➢ Strategically located submarine
cables and satellite network
➢ Global network running across
250,000 Rkms, covering 50
countries and 5 continents

Tower Infrastructure
➢ One of the world’s largest
passive infrastructure
providers
➢ Over 91,451 towers
(including proportionate
share of Indus)

10
Global Presence
✓ Capacity in 30 International Cables.
✓ Combined Capacity of 4+tbps Lit.
✓ Global Network Running Across
2,50,000 RKMs.
✓ Presence in 17 countries in Asia and Africa.
✓ Network Spanning 50 countries and 5
continents.
✓ Over 7gbps Satellite Capacity.
11
 Management and Corporate Governance
Governance Structure
• The Company’s Board is an optimum mix of Executive, Non-
Executive and Independent Directors
• It conforms with the provisions of the Companies Act, 2013,
Listing Regulations, FDI guidelines, terms of shareholders’
agreement and other statutory provisions.
• The Board comprises eleven members which includes a
Chairman, a Managing Director & CEO (India & South Asia),
three Non-Executive Directors and six Independent
Directors.
Mr. Sunil Bharti Mittal – Chairman
Mr. Gopal Vittal – MD & CEO

Non-Executive Directors Independent Director

Ms. Chua Sock Koong Mr. Ben Verwaayen

Mr. Craig Edward Ehrlich

Mr. Rakesh Bharti Mittal
Mr. D. K. Mittal
Ms. Tan Yong Choo
Mr. Manish Kejriwal

Mr. Shishir Priyadarshi

Mr. V. K. Viswanathan
Committees of the board
Corporate
Risk HR & Stakeholders’
Audit Social Committee of
Committee Management Nomination Relationship
Responsibility Directors
Committee Committee Committee
Committee

Audit Committee Nomination and Remuneration Committee

• The Committee invites the MD & CEO, CFO & • This Committee formulates and reviews the criteria
Company Secretary and President – Industrial JVs, for appointment of a Director on the Board of
Vice President – Finance, General Manager – Directors of the Company.
Corporate Accounts, Statutory Auditor(s) and Chief • It also formulates the criteria for determining
Internal Auditor to attend the meetings of the qualifications, positive attributes, independence of a
Committee director and makes necessary recommendations to
• The Audit Committee oversees the scope and the Board.
coverage of the IA plan, and evaluates the overall • It recommends to the Board on extension or
results of these audits during the quarterly Audit continuation of the term of appointment of
Committee meetings. Independent Directors on the basis of the report of
performance evaluation of Directors
Name of the Director(s) Nature of Membership
Name of the Director(s) Nature of Membership
Mr. V. K. Viswanathan Chairman
Mr. Ben Verwaayen Chairman
Ms. Tan Yong Choo Non-Executive Director
Ms. Chua Sock Koong Non-Executive Director
Mr. Craig Edward Independent Director
Mr. Rakesh Bharti Mittal Non-Executive Director
Ehrlich
Mr. D. K. Mittal Independent Director Mr. Manish Kejriwal Independent Director
Stakeholders Relationship Committee Corporate Social Responsibility (CSR)
Committee
• The terms of reference of the Committee • Recommend the amount of expenditure to be
includes enquiring into and redressing incurred on the activities
complaints of shareholders and investors and • Monitor implementation and adherence to the
CSR Policy of the Company from time to time
to resolve the grievance of the security • Prepare a transparent monitoring mechanism for
holders of the Company. ensuring implementation of the projects/
programmes/activities proposed to be undertaken
Name of the Director(s) Nature of Membership
by the Company
• Such other activities as the Board of Directors
Mr. Rakesh Bharti Mittal Chairman may determine from time to time.
Name of the Director(s) Nature of Membership
Mr. Manish Kejriwal Independent Director
Mr. Rakesh Bharti Mittal Chairman
Mr. Gopal Vittal MD & CEO
Mr. Gopal Vittal MD & CEO
Mr. D. K. Mittal Independent Director
Mr. D. K. Mittal Independent Director

Committee of Directors Name of the Director(s) Nature of Membership

• To cater to various day-to-day requirements and to
facilitate seamless operations, the Company has Mr. Rakesh Bharti Mittal Chairman
formed a functional Committee known as the
Committee of Directors. Mr. Manish Kejriwal Independent Director
• The Committee meets as and when deem necessary Mr. D. K. Mittal Independent Director
to cater to the day to day requirements of the
Company.
Mr. Gopal Vittal MD & CEO
Risk Management Committee
• Framing a risk management policy
• Identify Company’s risk appetite set for various elements of risk
• Review the risk management practices and structures and recommend changes to ensure their adequacy
• Approve and review the risk treatment plans put in place by management
Name of the Director(s) Nature of Membership

Mr. D. K. Mittal Chairman

Mr. Gopal Vittal MD & CEO

Mr. V. K. Viswanathan Independent Director

Mr. Rakesh Bharti Mittal Non-Executive Director

Risk Identification Process

 Industry Overview
Indian Telecom Market
✓ Second-largest subscriber base
✓ Rising penetration rate
✓ Second-highest number of internet users
✓ Affordability and lower rates
✓ Policy Support and Attractive Opportunity

Telecom
• India’s telephone subscriber base expanded at a
CAGR of 17.44 percent.
Mobile Fixed-Line Internet • Tele-density increased from 18.3 per cent in FY07 to
(Wireless) (Wireline) Services 92.84 per cent in FY18.
• Total telephone subscriber base and tele-density
reached 1,192.04 million and 91.17 per cent,
respectively, at the end of October 2018.
Wireline Wireline
4% 2%
• As of October 2018, the
wireless segment comprises
98.15 per cent of telephone
subscriptions, compared to Rural
FY11 FY19 95.90 per cent in FY11. 33% Rural
• Share of rural subscribers in FY11 44% FY19 Urban
Urban 56%
Wireless Wireless total telephone subscribers has
67%
96% 98% surged and they form 44.04
per cent of total telephone
subscribers, compared to 33.35
per cent in FY11. 16

• wireless subscriptions in the country
increased at a CAGR of 19.61 per cent to
1,183.41 million
• Total broadband subscriptions increased at a
CAGR of 60.03 percent during FY07–18 to
reach 412.60 million.
• The number of wired broadband subscriptions
stood at 18.10 million, Wireless broadband
subscribers stood at 478.02 million, at the end
of October 2018.

MOBILE BANKING DTH AND CABLE

ENTERPRISES ➢ Cash based ➢ 250 mn
➢ 1.5 mn economy households
SMB/Enterprises ➢ 65% consumer ➢ Digital Cable/
➢ < 10% transaction by DTH
connectivity value are subscribers~ 100
currently in cash mn

17
Competitive Positioning in Indian Market

#2 Operator in Indian
Revenue Market Share

Current Market leaders in various segments

Wireless Vodafone
Segment Idea

Wireline BSNL
Segment

Internet Reliance Jio

18
Africa – Mobile Market • One of the fastest growing
economic zone in the
world.
• 444 Mn mobile
subscribers in 2017.
Expected to grow to 634
Million by 2025.
• Mobile broadband
connections to grow from
38% in 2017 to 87% by
2025.
• Median age in Africa,
excepted to be 19.8 by
2020

MOBILE
WIRELESS SMARTPHONE BANKING
PENETRATION DATA TRAFFIC
• 1.2 Bn • Banking
Population • Smartphone penetration • Mobile data traffic
(Airtel Africa penetration to reach low to grow by a CAGR
covers 547 50% by 2020 • Mobile money of 66% over the
Mn • 498 million services period of 2016-
Population) smartphones by predominant 2020
• Median 2020 in most
age<25 countries 19
Competitors for Peer Comparison

Indian Competitors Global Competitors

Vodacom
Vodafone-Idea Reliance Jio MTN Group Group
A+/NEG AAA/STABLE NEG zaAAA
CRISIL CARE Moody’s S&P

BSNL TATA Telkom Group AT&T

STABLE Teleservices Baa3/STABLE
AA-/STABLE
Baa3/STABLE
CARE Moody’s Moody’s
CRISIL

20
Financial Analysis Revenue Growth
-12%

EBITDA Growth
-14%

EBITDA Margin Growth

-2%

• Bharti Airtel reported

consolidated revenue coming in
at INR 205 Bn (+0.5% QoQ &
+1% YoY)
• EBITDA at INR 62.2 Bn (-0.4%
QoQ & -16.7% YoY)

21
 Key Performance Indicators
BHARTI AIRTEL Q2 FY 18 Q3 FY 18 Q4 FY 18 Q1 FY 19 Q2 FY 19 Q3 FY 19 YoY QoQ
ARPU( in Rs) 145 123 116 105 100 104 -15.45% 4.00%
EOP Subscribers( in '000s) 2,82,047 2,90,113 3,04,192 3,44,564 3,32,764 2,84,224 -2.03% -14.59%
MOU (in mins/sub) 518 575 670 700 686 726 26.26% 5.83%
MOUs (in mn) 4,37,142 4,94,546 5,92,657 6,84,191 6,93,061 7,02,881 42.13% 1.42%
Monthly Churn % 3.9 3.3 2.8 2.0 4.1 7.3 121.21% 78.05%

Data KPI Q2 FY 18 Q3 FY 18 Q4 FY 18 Q1 FY 19 Q2 FY 19 Q3 FY 19 YoY QoQ

Subs (in 000's) 65,769 70,836 86,077 94,783 97,666 1,07,511 51.77% 10.08%
Usage (mn MBs) 7,83,809 11,05,839 15,39,746 21,50,645 26,60,297 32,16,897 190.90% 20.92%

Network Sites Rolled out Q3 FY18 Q3 FY19 YoY

Bharti Airtel 2015 2016 2017 2018 Bharti Airtel - India 163808 175300 7.02%
Total Towers
Capex Commissioned Q3 FY 18 Q3 FY 19 YoY
Productivity 77.40% 69.89% 65.34% 49.88%
Bharti Infratel & Indus
Opex Towers 213969 216370 1.12%
Productivity 43.63% 42.75% 41.38% 42.88% Capex per site(Rs mn) FY 18 H1 FY 19 Apr FY18-Sept FY19
Capex( INR Bharti Airtel 1.82 2.58 2.06
millions) 146411193313 223030 245259 Vodafone Idea 1.31 1.55
22
1.37
 Profitability Performance
10 9.44 Decline owing
8.52
3.5 9 to decrease in
2.88 8
3 2.74 PAT
7
5.66
2.5 6
2 1.66 5
RoE
1.5
RoA 4
3
1 1.6
0.45 2
0.5 1
0 0
2015 2016 2017 2018 2015 2016 2017 2018

Peer Comparison – Financial Performance

Revenue From Operations
(INR millions) EBITDA(INR millions) EBITDA Margin (%)
1200000 400000 40
350000 35
1000000
300000 30

800000 250000 25
200000 20
600000
150000 15
400000 100000 10
50000 5
200000
0 0
0 2015 2016 2017 2018 2015 2016 2017 2018
2015 2016 2017 2018
Bharti Airtel Bharti Airtel
23
Bharti Airtel Average of Top 4 Competitors Average of Top 4 Competitors Average of Top 4 Competitors
 Financial Performance – Airtel Africa

Operating FCF(USD millions) PBT(USD millions)

300
140
240 121
250 113
120 106
196 197 200
200 100

150 80 69
60 47
100
40
50 27
20
0 0
Q2 FY 18 Q3 FY 18 Q4 FY 18 Q1 FY 19 Q2 FY 19 Q2 FY 18 Q3 FY 18 Q4 FY 18 Q1 FY 19 Q2 FY 19

Gross Revenue, EBITDA & EBITDA Margin

900 824 38.0%
772 794
800 743 767
37.1% 37.0%
700 36.4%
• Airtel Africa is the silver 35.9% 36.0%
600 35.5%
lining for the group 35.0%
500
• Revenue/EBITDA
400 34.0%
increased by 4.5% QoQ 272 277 289 305
300 246
and EBITDA margin stood 33.1% 33.0%
200
at 37% 32.0%
100
0 31.0%
Q2 FY 18 Q3 FY 18 Q4 FY 18 Q1 FY 19 Q2 FY 19

Gross Revenue(USD millions) EBITDA(USD millions) EBITDA Margin(%)

24
 Capital Structure
Debt Analysis
INR Debt to Equity (x times)
1.6
Net Gearing Ratio millions 1.4

Cash & Cash Equivalents ₹ 66,706 1.2

1
Other Investments ₹ 68,978 0.8

Total Short term Assets (a) ₹ 1,35,684 0.6

0.4
Non current borrowings ₹ 8,49,420 0.2

Current Borrowings ₹ 1,29,569 0

2015 2016 2017 2018

Current maturities of non-current borrowings ₹ 1,34,346

Total Liabilities (b) ₹ 11,13,335 Long term Debt to Equity( x times)
1.4
Net Debt (c=b-a) ₹ 9,77,651 1.2

Shareholders Equity (d) ₹ 6,95,344 1

0.8
Total Capital (e=d+c) ₹ 16,72,995
0.6
Net Gearing Ratio (c/e) 58.44% 0.4

0.2

0
Net Debt=ST liabilities+ LT liabilities - Current Assets 2015 2016 2017 2018

Increase in Debt/Equity and Long term Debt/Equity ratios due to excessive capital expenditure
25
 Total Borrowings Breakdown
Other LT Term Loans
Bank Overdraft
Commercial borrowings - 9.11%
15.43%
Paper defferred
26.87% Payment
Term Loans Liabilities
57.69% 38.79%

Non-
Non- Convertible
Convertible Bonds
Debentures 48.36%
3.73%

SHORT TERM BORROWINGS

LONG TERM BORROWINGS

In EURO Total Others

Borrowings 3.64%
12.48%

In INR
53.81%
In USD
30.07%

TOTAL BORROWINGS
26
Debt Serviceability
30 9.00
DCSR of Bharti Airtel 7.81 ICR
1.8 25 8.00
1.6
Net Debt/EBITDA 7.00
20 5.94
1.4 6.00 5.31
1.2 15 4.71
5.00
1
10 4.00
0.8
0.6 3.00
5
0.4 2.00
0
0.2 1.00
2015 2016 2017 2018
0 0.00
2015 2016 2017 2018 Bharti Airtel 2015 2016 2017 2018
Average of Top 4 Competitors

Both DSCR and ICR values register a dip owing to a decline in FCFF

Cost Analysis
Cost of Equity Cost of Debt WACC
Lower finance
14
cost QoQ owing
12 to derivatives and
10 exchange gain Vs
8 loss in previous
6 quarter and
4 higher investment
2 income
0
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2019 2019 2019 2018 2018 2018 2018 2017 2017 2017 2017 2016 2016 2016 2016 2015 2015 2015 2015 27
 Liquidity Performance 0.6

0.6 0.5 0.49

Current ratio(x times) 0.51
Asset Turnover Ratio(x times)
0.5 0.42 0.42
0.4
0.4
0.36 0.3
0.3 0.29
0.2
0.2 0.22 0.20
0.1
0.1
0.49 0.46 0.42 0.35 0.42 0.39 0.29 0.43
0 0
2015 2016 2017 2018 2015 2016 2017 2018

Bharti Airtel Average of Top 4 Competitors Bharti Airtel Average of Top 4 Competitors

Current ratio is below the industrial average reason being spike in

short term borrowings.
Decreasing trend in asset turnover ratio neds to be curbed

0.3
Quick Ratio(x times)
0.25 0.25
0.22
Bharti Airtel 2015 2016 2017 2018
0.2 0.21

0.15 Working Capital -366780 -358052 -452559 -447409

0.13
0.1
The Company believes that the Cash and cash
0.05 equivalents, cash generated from operations and
0.25 0.21 0.18 0.25 available un-drawn credit facilities, will satisfy its
0
2015 2016 2017 2018 working capital needs and other liquidity requirements
Bharti Airtel Average of Top 4 Competitors
 0.40
35.00% CFO/Sales(%)
30.00% 32.33%
0.35
0.36 CFO/Total Debt(x times)
0.30
25.00%
26.31% 25.93% 0.25
24.75%
20.00% 0.25
0.20 0.24
0.22
15.00% 0.17
0.15
10.00% 11.43%
8.48% 8.83% 0.10
5.00% 0.06
0.05
0.00% 0.03
0.00
2015 2016 2017 2018-2.51% -0.02
-5.00% 2015 2016 2017 2018
-0.05
Bharti Airtel Average of Top 4 Competitors
Bharti Airtel Average of Top 4 Competitors

A dip in free cash flow is a concern particularly

when the revenue stream is getting stabilised.
2.00
Free Cash Flow(in INR millions)
CFO/EBITDA(x times) 120000
1.50 95720
1.43
100000

1.00 0.89 80000

0.77 0.73 56999
0.66 60000

0.50 40000 25277

0.46
0.31 20000 13297
13350.5
0.00 0 3288.25 4159.75
2015 2016 2017 2018 1 2 3 4
-20000
-0.50 -40000 -42922.5
-0.75 -60000
-1.00
Bharti Airtel Average of Top 4 Competitors
Bharti Airtel Average of Top 4 Competitors

29
Quarterly Financial Performance

Revenue(INR millions) EBITDA(INR millions)

206000 69000 68225
205192
68000
205000
204225 67000
204000
66000
203000 65000
202000 64000
200800 63000 62435 62180
201000
62000
200000
61000
199000 60000

198000 59000
Q1 FY19 Q2 FY 19 Q3 FY 19 Q1 FY19 Q2 FY 19 Q3 FY 19

EBITDA(INR millions)

Total Debt/Equity
1.7
1.66
1.65

1.6

1.55
1.51
1.5
1.45
1.45

1.4

1.35

1.3
Q1 FY19 Q2 FY 19 Q3 FY 19
30
Total Debt/Equity
 Rating History CRISIL

Particulars Current Rating Previous Rating Comments

( as on Nov 15, ( as on May 22,
2018) 2018)

Long Term bank Due to excess leverage

facilities and NCDs AA/Stable AA+/Negative and continued pricing
pressure
Commercial Paper A1+ A1+

ICRA

Current
Particulars Rating Previous Rating Comments
( as on Dec17, ( as on August
2018) 06, 2018)
Pressure on Debt
Term Loans AA/Stable AA+/Negative
Coverage and business
Commercial Paper A1+ A1+ risk 31
Key Rating Drivers
✓ Management effectiveness
and Strategy – Minimum
ARPU plan, ladder
Strategy, re-farming of
spectrum, bundling of
plans and war on waste.
✓ Diversified Presence
across geography and
sectors – Africa & South
East Asia under Digital,
Fin-tech, non-mobility
services etc
✓ Improved KPIs like ARPU,
MOU and data usage.
✓ Financial flexibility to fuel
capital expenditure and
diversified debt portfolio.
✓ Accelerated revenue
growth through B2B, IoT,
Cyber security and DCs.
✓ Focus on plans for
deleveraging through
stake dilutions and
partnering new deals –
‘#airtelthanks’
✓ Continued competitive
industry and pricing
pressure.
✓ KPIs like churn and EOP
subscribers on a decline.
✓ High leverage and
diminishing free cash
flow due to capital
expenditure
✓ Cost control – high access
costs and network costs
over the past quarters.
✓ Exposure to regulatory
changes and technological
risks.
32
Investment Summary
✓ NCLT, New Delhi sanctioned Composite scheme of Arrangement
between Tata Teleservices Limited, Bharti Airtel Limited and Bharti
Hexacom Limited.

✓ Qatar Investment Authority (“QIA”), the sovereign wealth fund of the

State of Qatar has agreed to invest USD 200 million in Airtel Africa
Limited, a subsidiary of the Company and holding entity of Africa
operations of the Group, through a primary equity issuance in the
company.

✓ Airtel Africa received an injection of USD 1.25 billion in investment

from six international investors.

✓ Airtel Africa Plans to acquire Telkom Kenya by buying 60% stake from
Helios Investment

✓ Installation of over 200000 4G base stations in the past year

✓ Plans to re-farm its existing 900Mhz spectrum in 10 circles from 2G to

4G by March- 2019 for improving the 4G experience indoors

✓ Stake dilution in Indus Infratel Tower company

33
 Credit Rating Model
Probability of
Altman Z
Default
Score
(KMV)

Probability of Default
0.250%
Company 2015 2016 2017 2018
0.200%

Bharti Airtel 2.34 2.06 2 1.58 0.150%

0.232%
0.100%
Vodafone Idea 2.29 2.2 1.43 0.87
0.050% 0.060%
0.026% 0.045%
Indicates the probability of a company filing for 0.000%
bankruptcy within the next two years. 2015 2016 2017 2018
The higher the value, the lower the probability of
bankruptcy.
Distance to Probability of
A score below 1.8 indicates bankruptcy is imminent.
FY ST Debt LT Debt Equity Default Default
A score above 3 indicates bankruptcy is unlikely.
Altman's Z-Score is only available on publicly listed 2015 211389 452283 668089 2.99 0.026%
companies with all the requisite fundamentals for the
model. Calculated as: 2016 111840 892686 722674 3.01 0.045%

Altman's Z-Score = 1.2 * (Working Capital / Tangible 2017 176494 896373 743313 2.86 0.060%
Assets) + 1.4 * (Retained Earnings / Tangible Assets) + 3.3
2018 263915 849420 783483 2.56 0.232%
* (EBIT / Tangible Assets) + 0.6 * (Market Value of Equity
/ Total Liabilities) + (Sales / Tangible Assets) 34

Scale – 20%
Expected revenue forecast for 2019
and 2020 are Rs.816 billion and
Rs.882 billion
EBIT margin to increase by 5.8% and
6.2% for 2019 and 2020
Since the performance is above
industry average, we assign AA
rating
Leverage Ratios – 20%
Diversified debt structure and a
decrease in finance costs
Optimal Gearing ratio of 58.44%
and slight increase in WACC
D/E and LT DEBT/Equity ratios of
1.42 and 1.08 are optimal and
better than their competitors
We recommend AA rating on
account of efforts for deleveraging
Business Profile – 20%
Diversified presence across the
geography and sectors
Strong and Proactive management
– “How we will win”
Good business KPIs solicits AAA
rating
AA
Reaffirmed
Financial Policy – 10%
The management is striving to
bring down the debt levels as is
seen in the sae of Airtel Africa.
Deleveraging and cost control are
given high importance
Profitability & Efficiency – 15%
EBITDA margin is expected to
improve to 31.7% and 40% by 2020
and 2021.
RoE and RoA has seen drastic dip
due to stress in EBITDA
Current ratio and quick ratio are
lower than industry average at 0.43
and 0.25 respectively.
Thus we recommend AA rating
Coverage Ratios – 15%
Interest Coverage ratio is 4.71 which
is optimum value
DSCR of 0.42 is low which shows
the possible strain on company
Hence we recommend A rating for
this metric
35
Thank
You
36