Airtel exposed to currency fluctuations; higher exposure to

unhedged forex loans

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By Kalyan Parbat, ET Bureau | 18 Aug, 2015, 08.18AM IST

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KOLKATA: Bharti Airtel, India's top carrier, will be the most vulnerable to currency
fluctuations among large-cap telecom companies, given its higher exposure to unhedged
forex loans as well as exposure to volatile African currencies, say analysts.

Bank of America Merrill Lynch has downgraded India's No 1 mobile carrier to

'underperform', estimating that a further dip in the rupee versus the US dollar could impact
Bharti Airtel's profit before tax (PBT) in the current fiscal. Noting that only 50% of Bharti's
principal repayment for the next 12 months is hedged on a rolling basis, the US brokerage
estimated that "a 5% (rupee) depreciation would impact Bharti's PBT by 9-to-11% in FY16",
especially since a 5% change in the US dollar exchange rate had impacted Bharti Airtel's
PBT by 10% in FY15".
Credit Suisse, in a recent note, had also noted Bharti Airtel's sensitivity to US dollar
movements which "had increased" and estimated that a 5% appreciation in the dollar could
trigger a 10.7% hit on the mobile phone operator's PBT in the year ending March 31, 2016.

It said that Idea, unlike Bharti, had over a period of time

reduced its dependency on foreign debt, especially when the

rupee started depreciating.

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The US brokerage, in turn, said Bharti Airtel is more prone to material forex fluctuations than
No 3 carrier, Idea Cellular. "Idea Cellular also has foreign debt, (but) its exposure is relatively low (compared to Bharti), at 15% of total
debt with most of it being hedged, thus limiting any material forex fluctuations."
It said that Idea, unlike Bharti, had over a period of time reduced its dependency on foreign debt, especially "when the rupee started
depreciating".
"Out of Idea's total Rs 20,200 crore debt, only 15% (less than $500 million) is in foreign currency, while 60% of Bharti Airtel's loans are in
US dollars, of which 60% is floating," said the US brokerage.
Small wonder, analysts at another foreign brokerage said Bharti's borrowing costs could further increase, in the event of a potential
interest rate hike by the US Federal Reserve, especially since a majority of the mobile carrier's US loans are floating. In its latest annual
report, Bharti said the group transacts business in local currency and in foreign currency, primarily US dollars. The Group, it said, "has
obtained foreign currency loans and has foreign currency trade payables and receivables, and is therefore, exposed to foreign exchange
risk".
Bharti Airtel's consolidated net debt as on March 31, 2015 increased by $606 million to $10.67 billion from $10.07 billion in the previous
fiscal, mainly due to spectrum payout obligations. Net debt as on June 30 was $10.69 billion. Subsequently, the company's Africa net loss
for the fiscal first quarter to June 2015 widened to $154 million (Rs 985 crore) from $137 million (Rs 876.2 crore), largely weighed down by
currency depreciation.
Earlier this month, reporting first quarter results for the current fiscal, the company had said the revenue-weighted currency depreciation
versus the US dollar across its 17 African markets over the past 12 months had been as much as 21.6%, mainly caused by depreciation
in key African currencies, including the Madagaskar Malagasy Ariary, the Ghana Cedi, the Nigerian Naira, the Ugandan Shilling, the
Tanzanian Shilling and the Zambian Kwacha.
In this context, Bank of America Merrill Lynch said calculating "the mark-to-market forex impact for Bharti Airtel on an accurate basis
becomes difficult, given the massive volatility amongst its various African currencies".
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