NEW DELHI: Global rating agency Fitch on Thursday said the merger of Bharti Infratel with Indus Towers (Indus) reflects fierce price competition in the Indian telecom market. There is heightened pressure for consolidation on incumbents to sell assets to raise funds, Fitch added.
"We do not anticipate any change in Bharti Airtel's 'BBB-' rating, as the deconsolidation of 54 per cent-owned Bharti Infratel's $300 million EBITDA and $1 billion in net cash will be offset by cash dividends and greater liquid equity value in the merged tower entity," it said in its press release.
Bharti Infratel on Wednesday agreed to merge with Indus Towers, in a deal that creates the worlds No. 2 telecom tower company with an estimated equity value of $14.6 billion, Reuters reported.
Top Indian telecoms carrier Bharti Airtel, the majority owner of Bharti Infratel, will be the biggest shareholder in the combined company followed by Vodafone Group, the companies said in a joint statement on Wednesday.
The rating agency notes that Bharti Airtel, which owns 23 per cent effective stake in Indus through Infratel, has also been affected by Jio's entry, albeit less severely than Vodafone and Idea. The telecom major on Tuesday reported a 78 per cent YoY fall in its March quarter net at Rs 83 crore.
Revenue slipped 10.48 per cent year-on-year to Rs 19,634.30 crore during the quarter under review. India ARPU (average revenue per user) for voice and data combined –- a key operational indicator –- also 26.60 per cent on year-on-year basis to Rs 116 during the quarter under review.
Fitch says Bharti Airtel's revenue and ebitda will likely rebound in FY19, driven by a likely improvement in Indian mobile ARPU as data usage and tariffs rise. "However, Bharti will continue to have negative free cash flow (FCF) during FY19, as cash flow from operations will be insufficient to fund the higher capex of around $4 billion needed to support strong growth in data traffic and to compete against Jio.
"Beyond the short term, we expect price competition in the Indian telecom market to ease following the emergence of three large telcos – Bharti, Jio and the merged entity of Vodafone-Idea – which we estimate to have a combined revenue market share of 90 per cent. We expect industry revenue growth to be in the mid-single-digits in 2018, following a decline in 2017," Fitch says.
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