Airtel’s Capex to increase to $5 bn focusing on 5G: Fitch

Rating agency Fitch said it forecasts Bharti Airtel’s Capex to increase to about $5 billion in FY22 from $4.6 billion in FY 2021.
Airtel business customersBharti Airtel is expected to keep $1.5 billion to make upfront payment for acquiring 5G spectrum assets during the 5G spectrum auction in India.

“We believe that the company will also seek to strengthen its fibre infrastructure – connecting towers with fibre and backhaul infrastructure to prepare its network to launch 5G services in 2022-2023. Capex on 5G infrastructure during 2022-2023 will replace 4G investments, as 4G coverage is largely complete,” Fitch Ratings said.

Airtel’s $2.8 billion equity issuance will improve its FFO net leverage to around 2.0x (end-March 2021: 2.1x) and provide funds to strengthen its market position, says Fitch Ratings. Airtel will raise equity in three tranches, a quarter of the proceeds to be received upfront and the balance in two installments within three years.

Airtel raised about $9 billion in the financial year ended March 2020 (FY20) and FY21 via equity issuance, selling a stake in subsidiary Airtel Africa and the sale-and-leaseback of towers in Africa. The aim of Airtel is to achieve a debt / EBITDA ratio of around 2.0x in the long term.

Airtel revenue and EBITDA grew by 15 percent and 30 percent, respectively, in 1QFY22. Fitch said the industry’s monthly average revenue per user (ARPU) to rise by 15-20 percent to INR175 (USD2.4) in the next 12 months as compared with INR146 in 1QFY22), on tariff increases and increasing migration of 2G users to higher-priced 4G plans.

Airtel increased the minimum amount that a prepaid user must pay to keep a number active to INR79 (USD1) from INR49. Airtel Chairman Sunil Mittal recently said industry-blended ARPU needs to increase to around INR200 in the next 12 months and to INR300 in the medium term.

Airtel has paid about $2.4 billion of the total of $6.4 billion to Department of Telecommunications in a dispute over the amount of adjusted gross revenue (AGR) dues.

Reliance Jio and Airtel are expected to increase their combined revenue market share among private telcos to 80-82 percent from 77-78 percent in June 2021, at the expense of third-placed Vodafone Idea, which may lose 50-70 million subscribers in the next 12 months.

Vodafone Idea has lost about 180 million subscribers in the last three years, with 255 million at end-June 2021. Vodafone Idea is struggling, and needs to raise new funds to pay for capex, AGR dues and repay maturing debt.

Airtel’s main shareholders, Bharti Telecom and Singapore Telecommunications (Singtel), will collectively subscribe to their full entitlement in Airtel’s rights issue. Singtel has yet to announce its exact subscription. Fitch estimates Singtel’s equity participation over a three-year period to be about $400 million, based on its 14 percent direct stake in Airtel.

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