According to a note released by JP Morgan, India’s telcos like Bharti Airtel and Vodafone Idea Limited (Vi) are unlikely to see a significant negative impact due to rising interest rates and forex fluctuations.
The brokerage firm further noted that Airtel’s exposure to interest rate fluctuations and foreign exchange (forex) rates could impact its profit after tax by 1 per cent, 2 per cent, and 3 per cent in FY’23, FY’24, and FY’25 respectively. As per JP Morgan, Vi’s profit-after-tax (PAT) sensitivity to the same is projected at 1 per cent, 1 per cent, and 2 per cent for FY23, FY24, and FY25 respectively.
Meanwhile, the firm also noted that the interest rate sensitivity has been an emerging investor concern with rising interest rates. However, given a high proportion of fixed-rate Indian rupee debt from spectrum and adjusted gross revenue (AGR) dues, interest rate sensitivity is less than feared.
Providing further detail, JP Morgan mentioned that in the case of Airtel, of the total $17.5 billion debt, 25 per cent is floating rate debt (comprising non-convertible debentures (NCDs), commercial papers (CPs), bank debt and debt from Africa business). Also, another 16 per cent is at risk from renewals, as these are callable bonds. The analyst report puts PAT sensitivity to a 100 basis point movement in interest rate at 1-3 per cent over FY’23-25. Additionally, the company has been paying off high cost debt, which would bring interest costs down, analysts observe.
