Mixed message for Indian operators from rating agency

Mixed message for Indian operators from rating agency

How long can India’s beleaguered operators Bharti Airtel and Vodafone Idea handle high levels of debt? That’s the question arising from a recent report from credit rating agency Moody’s.

The good news is that operator earnings are stabilizing; in fact Moody’s says that ARPUs are going up for both Bharti and Vodafone. Much-reported plans to raise prices should help too, once the new tariffs arrive in December.

However, cash flow is likely to continue to be a problem, thanks to higher interest costs and ongoing capex of course, but also thanks to the heavily reported payments to India’s Department of Telecommunications. In fact large fees owed to the government will in all likelihood be debt funded. That said, the recently announced moratorium on spectrum payments over the next two years will provide some relief. 

The situation was not great in Q2, when Vodafone Idea and Airtel posted Rs 74,000 crore (about $10.34 billion) loss on adjusted gross revenue provisioning based on pending government dues. These losses were confirmed following a recent Supreme Court ruling.

Neither operator is out of the woods yet. Moody’s notes that uncertainty as to whether profitability, cash flow and debt levels can improve sustainably and materially remain key credit risks. There have even been doubts about the future of one or both operators in the face of massive debt problems. And, of course, this doesn’t necessarily take into account the looming challenge of 5G and how the spectrum is to be paid for.

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