Bharti Airtel Ltd. plans to form a dividend policy as soon as it reaches a "comfort" on its debt levels. While the company’s focus remains on deleveraging, consideration of a dividend policy is a sign of confidence that the company has in its cash flow and profit abilities.
Bharti Airtel has inconsistently given out dividend in the last few years, even as the telecom sector in India has faced major regulatory headwinds.
But, a dividend policy in place would mean a visibility on its cash flows and profit that would allow the company to give structural payout to its shareholders.
India’s second largest telecom company is aiming to get its net debt/Ebitda for its India business to two or less, which is currently slightly below 3 at nearly 2.92. The ratio is considered a measure for analysing how many years it would take the company to repay its debt through its operational profit.
“In the shorter term, (we) look towards reaching closer to 2 consolidated (net debt/Ebitda), closer to 2.5 or below for India,” Harjeet Kohli, the joint managing director of Bharti Airtel said, during its third quarter earnings call.
Based on estimates by analysts, Bharti Airtel is likely to achieve these levels by the end of fiscal 2025.
According to Nomura, the telecom company is likely to pare its net debt from Rs 2.07 lakh crore at the end of FY23 to Rs 1.85 lakh crore by the end of fiscal 2025. The net debt to Ebitda will be 2.1 and will likely fall to nearly 1.5 by the end of FY26.
Meanwhile, consolidated Ebitda growth is likely to be at 18% CAGR over FY24-26.
Operational efficiency coupled with tariff hike, which is expected in the current year, will further boost the company’s Ebitda.
Of the total debt, nearly 50-55% is owed to the Department of Telecom in adjusted gross revenue and other dues, Kohli said. Moreover, telecom companies will have to begin annual payments of AGR dues after the moratorium is lifted in FY26.
The company’s overall cash balance has also risen 26% sequentially to Rs 5,516.9 crore in the third quarter for the current fiscal. However, on a year-on-year basis, it has fallen 9%.
Operating free cash flow has consistently risen in this fiscal. On an annualised basis, it has increased 16% in Q3 of FY24.
Capex Moderation
As the 5G rollout nears completion, the capital expenditure for Bharti Airtel will also begin to moderate from the next fiscal, giving a further boost to its cash flows.
The company spent Rs 34,194.7 crore of capital expenditure in FY23, as compared with Rs 28,965 crore in the first three quarters of FY24.
“This was one year (FY24) where we had indicated would be an elevated year of capex, and we continue to stick to that. I think the next year will moderate in terms of capex,” said Gopal Vittal, managing director at Bharti Airtel.
Vittal refused to offer any guidance for capex, stating that it is a competitive market and the company would “wait and watch”.
However, the company has managed to raise its free cash flows, despite peak capex. From hereon, as capex moderates, cash flows are likely to further pick up, making room for consistent dividend payouts by the company.
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