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Bharti Airtel: Bleak future ahead

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CIOL Bureau
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MUMBAI, INDIA: The falling revenues and profit margins of Bharti Airtel, one of the top three mobile operators in India, over past years have now started to take the sheen off of its global credit ratings.

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Singapore-based Fitch Ratings had affirmed Bharti's long-term foreign currency rating, Issuer Default Rating (IDR), at ‘BBB-‘ and predicted a negative outlook for the company before its fourth quarter announcements.

Also read: Airtel net slips for ninth quarter

The mobile services giant struggled to break the jinx of nine straight quarterly profit falls with a consolidated net profit down to Rs 10.06 billion in the fourth quarter ended March 31, 2012 against Rs 14 billion for the same period last year, but its efforts went in vain.

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According to Fitch Ratings, the negative outlook reflects Bharti's exposure to adverse regulatory changes in India that could result in higher-than-expected cash outflows compared with Fitch's base case expectations. 

Also read: Airtel ties up with Huawei for 4G in Karnataka

This is despite Bharti's ability to organically improve its balance sheet due to growing Indian and African operations. Regulatory risk is high for the Indian telecom industry compared with the other markets in Asia Pacific, Fitch Ratings observed.

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"Fitch believes that an evolving regulatory framework, frequent policy changes and 2G licence cancellations by India's Supreme Court in February 2012 could change the industry structure in 2012 and negatively affect Bharti's free cash flow generation," said Nitin Soni, associate director, Fitch's Asia-Pacific Telecom, Media and Technology rating team.

A one-time charge for excess spectrum, spectrum re-farming and the imposition of high spectrum renewal fees by the Telecom Regulatory Authority of India (TRAI) are among Bharti’s key regulatory risks. 

TRAI's new April 2012 recommendations on spectrum pricing and an early execution of spectrum re-farming have further increased the risk of regulatory-led cash outflows for Bharti, Fitch noted.

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The credit rating agency believed that Bharti faces a number of execution challenges in its African operations, including greater competition and a higher cost structure, compared with its Indian operations as well as increasing capex requirements.

Specifically, in Nigeria -- the largest African market -- Bharti faces tough competition from MTN Group Limited which holds 50 per cent market share and generates over 60 per cent EBITDA margins mainly from high on-net traffic, Fitch Ratings said.

Despite the negative outlook, the rating agency has some good news for teh telecom giant. For fiscal 2013, it expects the telco’s Indian funds flow from operation (FFO) to grow in low double digits with the monthly subscriber growth of around 1.5 to 2 million, supported by average revenue per minute of 43—44 paisa per minute.   



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