S&P upgrades Bharti rating by a notch

Standard & Poor's today raised its corporate credit rating on Bharti Tele-Ventures to 'BB+' from 'BB' on the telephony services provider's improving financial profile and continued strong subscriber growth.

Following the company's turnaround in profitability over the past two years, cash flow protection, as measured by funds from operations to debt, also improved to 57 per cent as of June 30, 2005 from its three year (2002-03 to 2004-05) average of 29 per cent. Its debt to EBITDA also improved to 1.6 times from 3.7 times, said Yasmin Wirjawan, credit analyst, S&P.

Bharti has around 12.3 million subscribers and about 1 mn broadband and fixed-line customers as on June 30, 2005.

Bharti's wireless subscriber base grew 60 per cent year on year in the three months ended June 30, 2005, higher than the 53 per cent growth in the overall market.

It is the largest wireless operator in India, with a market share of about 22 per cent. Bharti's strengths are, however, partly offset by intense competition and the company's aggressive expansion plan.

"The wireless market in India is fragmented and this has led to a significant fall in tariffs and poor profitability for the operators, particularly the smaller ones," said Wirjawan.

In addition, the company's ability to reduce its leverage position significantly in the near term is limited, as the company still needs substantial investments to accommodate industry growth and take on the competition.

Bharti has budgeted capital spending of almost $1 billion for fiscal 2005-06, or about 50 per cent higher compared with the previous year.

This will largely be used to upgrade its cellular network capacity and expand coverage in its fixed line and broadband businesses. Bharti's liquidity is adequate.

As at June 30, 2005, its Rs 200 crore cash balance, Rs 1,400 crore undrawn committed credit facilities, and Rs 600 crore short-term investments were sufficient to cover almost Rs 2,300 crore of debt and equipment payable due in one year.