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Good News for Airtel Shareholders

Good News for Airtel Shareholders

Published on 14 September 2021 Views 91 Comments 0

There is a piece of good news for Bharti Airtel Shareholders as a Global Rating Agency S&P Global has revised and upgraded the ratings of the company. Let’s know more about this update about the company in this article.

Introduction:

Bharti is a leading provider of telecommunication services with a presence in 20 countries representing India, Bangladesh, Sri Lanka, and 14 countries in Africa. It has a pan-India mobility network spanning all 22 telecom circles. The enterprise services division, along with voice, data, and video services also provides network integration, data centers, managed services, enterprise mobility applications, and digital media solutions

Rating Upgrade:

  • S&P Global, a Global Rating Agency has improved the outlook from ‘negative’ to ‘stable’.
  • The Agency maintained the rating of BBB- for the company.
  • The reasons stated by S&P Global for upgrading rating outlook is improved operating fundamental and superior leverage management.
  • The Agency said, “The Stable Outlook reflects our view that Airtel will actively manage its leverage such as that its Ratio of Funds from Operations (FFO) to debt will stay well above 20% on a sustained basis while maintaining its competitive position.”

Reasons for Upgradation:

i) Improved Operating Fundamentals:

  • The Company seems to progress very well on the vision of increasing the Average Revenue Per User (ARPU).
  • Average Revenue Per User refers to the amount of money that a company can expect to generate from an individual customer. It's calculated by dividing the total revenue of the business by its total number of users.
  • In terms of ARPU, the company expects it to take to the levels of Rs. 200 per month per user in the next 1-1.5 years.
  • While for 3-5 years, the company sets the target of taking the ARPU Levels per user to Rs. 300 per month.
  • The company feels that the consolidation phase in the Telecom Sector is over and the industry should look forwards to the latest advanced technology like 5G, etc. For the same reason, ARPU should be increased.
  • Specifically for investment in 5G, its spectrum purchase and to make it available across the whole states of the country, the company needs an investment of around Rs. 50,000 Cr.
  • To achieve this target, the company has started taking steps. As for Postpaid Plans, there is an increase in the entry-level plans, while the company is hiked the plans by around 61% for Prepaid Users.
  • Hence, Looking at the current steps and the direction of the company, the operating fundamentals look good for the company.

ii) Superior Leverage Management:

  • Leverage means ‘Loans’. Recently, the company has issued a Right Issue wherein the company will utilize the amount raised for CAPEX, Debt Repayment, and AGR Payment Dues.
  • There were other borrowing options available for the company from Banking and Financial Institutions, etc. but the company opted for the Equity Route for raising money to control the debt situation of the company.
  • Subscribers need to pay 25% on application and the balance in two more additional calls as may be decided by the Board/ Committee of the Board from time to time based on the Company’s requirements within an overall time-horizon of 36 months.

Conclusion:

Amid the current situation of the Telecom Sector of the country, Jio and Airtel seem to be the strong player in this sector in the coming period. Airtel is currently enjoying a win-win situation wherein if Vodafone Idea (Vi) gets some relief from Government, the same will be given to Airtel too and if not, then Airtel is going to gain Vi Customers. Do not directly invest in the stock based on the above discussion, do proper research and study before making an investment decision.

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