Airtel's revenue and EBITDA to rebound in FY19: Fitch Ratings

According to a new report by rating agency Fitch Ratings, Bharti's revenue and EBITDA to rebound in FY19 driven by a likely improvement in the blended average revenue per user (ARPU) in the Indian mobile sector as data usage and tariffs rise.

The firm said that the telco's FY18 revenue and EBITDA are likely to decline by 10 percent and 15 percent respectively, reflecting unprecedented competition that pushed down blended ARPU by 29 percent to an all-time low of Rs123 ($1.9) in the quarter ended December 2017.

Bharti Airtel's rating headroom will narrow due to lower cash generation and high CapEx requirements in the financial year ending March 2018 (FY18)," Fitch Ratings said in a statement. That said, Fitch pointed out that pressure on Bharti and other incumbent Indian telcos "should begin to fade this year" as the competition triggered by Reliance Jio's 2016 market entry begins to ease.

It noted that Bharti is committed to maintaining an investment-grade rating and intends to sell a larger stake in its telecom tower arm, Bharti Infratel Ltd, in FY19. In the last one year, it has sold 18.5 percent in Bharti Infratel for about $1.9 billion.

"We forecast annual negative free cash flow $600 million-$800 million during FY18-19, as Bharti's cash flow from operations will be insufficient to fund large capex requirements," Fitch said.

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The report further said that The outlook for the Indian telco sector is improving, which could mean that the results in the quarter ended December 2017 marked a low point for Bharti and other incumbents. We revised the sector outlook to Stable in 2018 from Negative in 2017, as we expect competition to ease now that industry consolidation is all but completed. Three large telcos - Bharti, Jio and merged entity of Vodafone-Idea - have emerged from the shake-out. Their combined revenue market share will increase to around 90 percent in 2018, from 80 percent in 2017, as smaller telcos continue to exit.

Industry revenue growth is likely to be in the mid-single-digits, after a decline in 2017. The current low industry tariffs are unsustainable, and we expect the rise in 2018, as Jio switches its focus from gaining customers to making reasonable returns on its $31 billion investment in the sector.