‘Pricing Power Won’t Return to Sector Soon’ Fitch Ratings says Airtel’s buyout of Telenor’s Indian ops latest sign of a shakeout; retains negative outlook for telecom
Mumbai: Bharti Airtel’s buyout of Telenor’s Indian operations is the latest sign of a shakeout in the sector after Jio’s entry spurred incumbents to consolidate and weaker telcos to exit altogether, ratings agency Fitch Ratings said, warning that even with fewer players, pricing power won’t return to the industry in the short term.
“We retain our negative outlook on the sector for 2017, as fierce competition and rising capex will put pressure on most operators in the short term,” the ratings firm said in a release Thursday. It added that Sunil Mittal-owned Airtel’s credit profile will remain unaffected by the planned acquisition as the benefits from additional spectrum assets will offset the spectrum li- abilities taken over.
Jio’s massive investment of $20-25 billion (.`123,000–.`170,000 crore) and offer of free voice and data for six months to new subscribers have accelerated industry consolidation. Fitch said the on-going consolidation is likely to leave four large operators — Bharti, Jio, the combination of Vodafone India and Idea Cellular — and the combined Reliance Communications and Aircel.
Vodafone and Idea are in talks for an equal merger to combine spectrum assets, strengthen balance sheets and reduce cost and capex to compete effectively. Reliance Communications is also in the process of merging its wireless operations with Aircel. “We continue to believe that competition will continue to remain high, and the consolidation is not likely to return any pricing power to the operators in the near term,” said the agency.
Fitch expects Airtel’s EBITDA for the financial year to March 2017 to be around $5 billion-5.3 billion (FY16: $5 billion) despite intense competition in the Indian mobile market during 2HFY17 (excluding Telenor's operations) given its diversified business profile. Bharti Airtel’s African operations account for about15% of EBITDA and its Indian non-mobile business contributes 23%.
“We estimate that Bharti’s FFO-adjusted net leverage for FY17 will be around 2.0x (FY16: 1.8x; excluding $5 billion deferred spectrum costs) — lower than the threshold of 2.5x, above which Fitch may consider negative rating action,” the agency said. It added that Bharti could raise funds by monetising a part of its 72% stake in its tower entity, Infratel, talks for which are on. Bharti sold 2.9% stake in Infratel for $310 million in 2015.