According to Moody’s Investor Service, the telecom reforms package is credit positive for Bharti Airtel and Reliance Jio as it will free up cash flows for reinvestments in existing networks, drive investments in 5G rollouts and retain the industry’s three- private players market structure.
Earlier this month, the Union Cabinet had approved a relief package for the stressed telecom sector that will help extend some flexibility to telecom companies on payment of their outstanding dues. To this end, the government has allowed a four-year moratorium on outstanding dues related to adjusted gross revenue (AGR), as well as spectrum related payments.
While Bharti Airtel has said that it will opt for the four-year deferred option for AGR and spectrum payments, Jio is yet to take a call.
As per Moody’s, once Airtel opts for the four-year deferred option for AGR and spectrum payments, it could free up around Rs 120 billion – Rs 130 billion of cash flow annually, which could be used to reduce debt further.
Moody’s also noted that Airtel’s leverage has been improving since the past one year owing to better profitability from its core Indian mobile business and capital interventions.
Airtel’s leverage has fallen to 3.7x for the 12 months ended June 2021 from 4.3x for the comparable period in 2020.
