After Subscribers, Ratings Agency Gives Thumbs Down to Airtel

Credit ratings Moody’s changed its outlook on Bharti Airtel’s issuer rating, senior unsecured debt ratings, and its ratings on senior unsecured notes, to negative from stable on Tuesday.

This does not seem to surprise many as Airtel reported heavy losses in their Q4 segment, feeling the intense heat of the competition in the telecom industry with newcomer Reliance Jio applying aggressive and disruptive tactics to make data an affordable commodity as opposed to a luxury. This has thrown a spanner in most of the  competition's profitable money churning setups as people are moving towards Jio as a more viable option.

"We expect Bharti's profitability to remain under pressure as competition remains at heightened levels over the nearterm," Annalisa Di Chiara, Moody's Vice President & Senior Credit Officer, said in an official statement on Tuesday.

No respite from this seems to be near in sight for Airtel that has seen a marginal rise in profits in their African venture which helped offset the losses at home. The company did maintain Airtel's Baa3 issuer rating and senior unsecured debt ratings but repeatedly indicated that the next few years would be extremely hard for Airtel with Jio taking on a key role as the dominant player in the market and will lead the way the market changes in the coming years. In fact, every move made by the competition can be attributed to Jio and the way competition chose to react in the face of new and intense competitor.

This downgrading of their credit ratings could be a strong indicator for things to come in the coming years as people have already started losing their trust in what was once a reliable name in the market. Back in March, Bharti Airtel sold 10.3 per cent of its tower arm to cut some of its huge debt and gird up for bruising competition in the wake of Jio's stiff competition. Airtel is still not evolved into a complete 4G network and is risking in a huge cut in profits just to match up to Jio’s tariff plans along with mounting debt and lack of confidence by investors and consumers alike, the coming days seem to be very bleak for Airtel.

Brand loyalists won’t be enough for Airtel to run a sustainable business to top that the consolidation of Vodafone and Idea will soon take away it’s number one subscriber base position in the market. Bharti's ability to expand profitability for its core Indian mobile operations relies on the company retaining its higher ARPU subscribers, while increasing the pace of subscriber acquisitions organically and through acquisitions, Moody’s said.

All it all, it is clear that Airtel cannot lead the people of India into an evolved and Digital India when it has never spared a thought about its own consumers in the first place. The ratings could affect Airtel’s ability to raise money for newer technologies and to offset its losses in the market while continuing to try and beat Jio and others at the pricing game.

While Moody’s has made it very clear that an upwards ratings pressure on Bharti Airtel is unlikely, given the negative outlook, it would be wise by everyone in the competition wait and wear out this telecom storm for the next 12 months and only then bet on the survivors.