Bharti Airtel hits two-year high; stock up 16% in one week

Moody's Investors Service says that Bharti's acquisition of Tata's consumer telecom business is credit positive.

Bharti Airtel has hit a two-year high of Rs 441, up 2% in intra-day trade, extending its past four day gain on the BSE, after the company on Friday, October 13, said it had agreed with Tata  Teleservices Limited (TTSL) and Tata Teleservices Maharashtra (TTML), to combine their consumer mobile business (Tata CMB) with Bharti.

The stock is trading at its highest level since July 2015. It past one week, it rallied 16% as compared with 2.3% gain in the S&P BSE Sensex.

The transaction is subject to requisite regulatory and other approvals and expected to take 6-9 months to close. According to the agreement, Bharti will acquire Tata CMB's India's operations in nineteen circles, including the transfer of all assets (including spectrum) and customers, on a debt-free cash-free basis.

"The acquisition will strengthen Bharti's spectrum holdings and add around 40 million subscribers to the company's leading market position in India's highly competitive mobile telecommunications market, a credit  positive," said Annalisa Di Chiara,  Moody's Vice President and Senior Credit Officer in a note.

"While consolidation activity is positive for the industry in the long-term, we still expect competition to remain intense over the next 12-18 months as leading operators -- like Bharti, Vodafone India and Reliance Jio Infocomm Limited - look to protect and grow market share," the ratings agency said.

The rating outlook is negative as we expect adjusted debt/EBITDA to remain elevated through 31 March 2018, barring any further significant debt reduction from additional efforts to monetise its assets.

Upwards ratings pressure is unlikely, given the negative outlook. However, the outlook could be revised to stable if Bharti's overall credit profile strengthens, such that adjusted debt/EBITDA is sustained at, or below, 3.0x. We would also look for adjusted EBITDA margins to be sustained above 40%, it added.