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Moody's: Bharti's strong Financial results support its rating

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Bharti Airtel's strong financial results for the third quarter of the 2014 financial year ending March 2014 (Q3 FY2014) continue to support its debt ratings, says Moody's. The ratings outlook remains stable.

"Underpinned by solid growth in its operations in India, Bharti reported strong nine-month results with year-on-year growth of 11% and 19% in reported revenue and EBITDA respectively," says Laura Acres, a Moody's Senior Vice President.

"Apart from its telemedia business, Bharti's main businesses in India all reported healthy year-on-year improvements and contributed to a 20% year-on-year increase in India's reported EBITDA," adds Acres, who is also the Lead Analyst for Bharti.

Building on the positive momentum in H1 2014, Bharti's mobile business in India added a further 5 million subscribers in Q3 2014, with the customer base now exceeding 198.5 million. While the subscriber base remains predominantly prepaid, the company also made good progress in increasing its data subscriber base, which increased 31% year-on-year. This growth contributed to a year-on-year increase of 5% in its mobile segment's overall average revenue per user (ARPU).

Whilst Bharti's operations in Africa also reported a healthy year-on-year increase of 11% in its subscriber base, the year-on-year increase in revenue was more modest at 2%, owing to unfavorable currency movements. Reported EBITDA for the nine-month period ended December 2013 was almost unchanged at USD885 million, compared to USD873 million in the same period last year. Reflecting lower capital investments, its nine-month free cash flow (FCF), using EBITDA -- capital expenditure (capex) as a proxy, improved to USD426 million from USD384 million a year ago.

Bharti's financial metrics also improved, with gross reported debt falling to about INR733.1 billion from INR744 billion in the previous quarter. On a last 12 month basis, Moody's adjusted debt/EBITDA fell to about 2.9x from 3.1x. On a reported basis, net debt/EBITDA for the 12-month period ended 30 December 2013 decreased to 2.06x, compared to 2.2x at 30 September 2013, well below the covenant threshold of 3.25x. With this decrease in debt and improvement in cash flows, Moody's adjusted FCF/debt for the 12-month period ended December 2013 improved to about 10.6% compared to about 7.8% at 30 September 2013.

The company's operating cash flow at the nine-month stage reached INR244.2 billion, which already exceeds the FY2013 full-year figure. While positive, Bharti will -- over the next twelve months -- also incur costs associated with the upcoming spectrum auctions and has targeted capex of USD2 billion. Notwithstanding this, we expect excess cash flow to continue to be used for debt repayments.

"Bharti also refinanced a part of its sizable USD debt with proceeds from its EUR750 million notes issue in December 2013 and the subsequent re-tap of EUR250 million in January 2014, which is credit positive as it helps diversify Bharti's currency exposure," adds Acres."

Bharti's overall liquidity has remained excellent with about INR150.9 billion of cash and marketable investments and strong banking support. The company also extended its debt maturity profile after refinancing its acquisition debt with new five-year Euro-denominated bonds. The upcoming auction costs for 1800MHz and 900Mhz spectrums will represent the only major committed expenditures in the next 12 months, although we expect such expenditures to be contained within the rating.

The rating outlook is stable, based on the expectation that Bharti will continue to grow its core Indian and African wireless businesses and that the group will continue to deleverage on both an absolute and relative basis.

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