S&P Global has revised Bharti Airtel Limited’s outlook to “stable” from “negative,” citing improved operating fundamentals and superior leverage management.

The stable outlook reflects S&P’s view that Airtel will actively manage its leverage such that its ratio of funds from operations (FFO) to debt will stay well above 20 per cent on a sustained basis, while maintaining its competitive position.

The development follows Airtel’s recent decision to raise Rs 210 billion through a rights issue which is likely to enable the telco to tap growth opportunities as well as to grow its digital business.

According to S&P, Airtel’s upcoming mega fund raise through a rights issue could also help reduce the upcoming impact of 5G spectrum liabilities, which will be vital for the carrier’s competitiveness.

S&P noted that the rights issue signals proactive leverage management.

As a result of Airtel’s improvements, its earnings before interest, taxes, depreciation and amortisation (EBITDA) should improve, which would mitigate any negative impact of 5G spectrum investments on its leverage. In addition, Airtel’s upcoming rights issue mitigates this risk.

The rating agency expects that Airtel will continue to improve its operational performance. It forecasts Airtel’s adjusted EBITDA to rise 16-18 per cent in FY22 and 9-11 per cent in FY23.

Airtel’s Indian mobile segment is expected to grow at a healthy rate in FY22, but at a slower pace than in FY21 because of the absence of an across-the-board hike in tariffs.

S&P Global noted that any government support for regulating the industry could result in an increase in Airtel’s profitability, although they have not included this in their base-case scenario.

In addition, S&P Global expects Airtel to resume its average revenue per user (ARPU) growth momentum, which has dwindled recently. Because of growing data demand, telco customers have been upgrading to higher tariff plans over time. In addition, Airtel is increasing its base prepaid rates by 61 per cent and raising postpaid entry-level plans for corporate users, it said in a clear bid to boost ARPU.

However, according to S&P Global, India’s 5G roadmap and Airtel’s corresponding investments in 5G spectrum remain uncertain. In fact, it expects any 5G investments to weigh on the company’s credit metrics, given the lag between investment and return.