Indian telecom operators are unlikely to be impacted by rising interest rates as only a small portion of their debt is dollar-denominated and on floating rates, according to JPMorgan.
The majority of the rupee debt for spectrum and adjusted gross revenue is at fixed rates, according to a report by the research firm. That also limits the risk from forex sensitivity.
JPMorgan's analysis reiterates Bernstein's view that the telecom industry has been resilient in the face of rising rates and inflation even as other sectors have seen adverse effects. Bernstein said the outperformance of the telecom companies is driven by "improving outlook and reasonable valuations".
JPMorgan On Bharti Airtel, Vodafone Idea
25% of Bharti Airtel's debt is at a floating rate, and the rest for AGR dues, spectrum dues and bonds is at a fixed rate. Of the $13.1-billion fixed- rate debt, dollar borrowing is $3.75 billion. Thus, for a 100-basis-point change in rates, profit after tax changes by 3%/2%/1% over fiscals 23/24/25.
Bharti Airtel is not at risk to rupee depreciation as 29% of its overall debt is in U.S. dollars, of which half is with Africa business where earnings, too, are in dollar.
For every 1% depreciation in rupee, Bharti Airtel's interest costs rise 20 basis points, impacting earnings by 10 basis points.
Vodafone Idea's 91% debt is fixed with AGR and spectrum dues, leaving 9% at floating rate. For a 100-basis-point change in rates, the profit after tax changes by 1%/1%/2% over FY23/24/25.
JPMorgan Overweight On Bharti Airtel
JPMorgan remains 'overweight' on Bharti Airtel, citing consistent share gains from superior network quality, improving average revenue per unit from tariff hikes and 4G upgrades, and promising digital metrics.
It's 'underweight' on Vodafone Idea as it expects the company to remain constrained on capex versus peers without fundraising or further tariff hikes.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
