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Fitch sees Bharti Airtel's capex rising to $5 bn in FY22; may spend $1.5 bn for 5G spectrum

Fund-raise to help improve Airtel’s net leverage to around 2 times: Fitch

COVID-19: Fitch follows global peers, cuts India’s growth forecast

It has been tough to survive in India’s telecom industry. While free voice calls and extremely cheap data plans have led to a surge in usage, ARPUs (average revenue per user) have gone for a toss. Then there is the adjusted gross revenue, deferred spectrum charges due to the government, and other taxes that the companies need to account for. On top of that, 5G is around the corner, and companies will need more funds to buy the spectrum in the coming year. 

Market leader Reliance Jio has already raised thousands of crores from marquee investors in the past 12-18 months that will fuel its next phase of growth. Perhaps, borrowing a leaf from Mukesh Ambani’s book, Sunil Mittal-led Bharti Airtel is building a war chest of its own and is also expected to raise its capital expenditure to strengthen its operations in a market that is increasingly looking like it is heading towards a duopoly. 

Earlier on Sunday, Bharti Airtel got board approval to raise Rs 21,000 crore via a rights issue. There is also speculation that tech giant Google is likely to invest in the telecom company. 

Credit ratings agency Fitch says the fund-raising will help improve Airtel’s net leverage to around two times from 2.1 times and provide funds to strengthen its market position.

The ratings agency expects the telecom company’s capex to increase to $5 billion in the year ending March 2022, of which $1.5 billion is likely to be paid upfront to acquire 5G spectrum assets.

Much of the capex over 2022-23 is expected to be towards 5G infrastructure, with 4G coverage largely complete. Airtel is also expected to strengthen its fibre infrastructure.

“We expect Bharti's main shareholders, Bharti Telecom and Singapore Telecommunications Limited (Singtel), will collectively subscribe to their full entitlement in Bharti's rights issue. We estimate Singtel's equity participation over a three-year period to be about $400 million, based on its 14 per cent direct stake in Bharti. These investments underscore the strategic importance of the Indian telecoms business to Singtel,” Fitch said. 

India’s telecom sector has seen a wave of consolidation in the last few years. The merger of Vodafone and Idea Cellular was the biggest in the industry. But, the merged VIL has been losing subscribers in millions amid uncertainties over its future. Both the promoters, Vodafone and Aditya Birla Group, are unwilling to make further investments and it may now be up to the government to offer some sort of relief to the ailing company and the wider sector.

In such a scenario, Fitch expects Jio as well as Airtel to strengthen their market share among private telecom companies to 80-82 per cent from 77-78 per cent in June 2021, at the expense of VIL.

VIL lost about 180 million subscribers in the last three years, according to Fitch, which expects the company could lose another 50-70 million subscribers in the next 12 months. 

Both, Airtel and VIL have been stressing on the need for industry revenues to increase for long-term sustainability. Recently, Airtel raised the entry level tariff by scrapping the Rs 49 plan; its prepaid plans now start from Rs 79. Fitch expects industry’s monthly ARPUs to rise 15-20 per cent in the next 12 months to around Rs 175 from Rs 146 in the first quarter of this financial year. A headline increase in tariff and migration of 2G users to higher priced 4G plans will drive the rise in ARPUs, it said.

Bharti Airtel’s shares are up around 12 per cent this week following the rights issue announcement. 


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