South Africa's MTN and India's Bharti Airtel are among the largest telecoms operators in the world by subscribers. While they share many similarities such as scale and exposure to Africa‚ there are key differences that contribute to the one-notch rating differential between the two companies‚ according to the agency.
MTN was rated Baa2 stable and Bharti received a Baa3 stable rating‚ which is a notch higher.
MTN has a footprint in 22 countries across Africa and the Middle East‚ and these territories contributed 78% of MTN's earnings before interest‚ tax‚ depreciation and amortisation (ebitda) for the year to last December.
The agency noted that by contrast‚ Bharti's African operations contributed about 27% of consolidated ebitda for the year ended March.
"Although the contribution from its African operations is increasing‚ over 70% of Bharti's ebitda comes from its core operations in India‚" Moody's analyst said in the latest credit-focus research report.
The report comes days after local analysts Dobek Pater‚ a director at Africa Analysis‚ and Spiwe Chireka‚ a telecoms analyst at International Data Corporation‚ warned MTN was likely to absorb more costs to remain competitive in Nigeria as the operators in that country were being pushed to invest more in infrastructure to improve the quality of service.
But Moody's said MTN's lower leverage provided it with room for debt-funded acquisitions and network expansion. Last week it was reported that MTN was seeking transformational deals that could take it beyond the continent and Middle East.
The agency said MTN's rival‚ Bharti‚ had significantly higher leverage. Another differentiating factor between the two was the pricing model. Moody's said Bharti's low pricing model resulted in lower profitability‚ and MTN‚ on the other hand‚ had maintained positive free cash flows across its African operations‚ which had allowed it to consistently increase dividends and management fees to the holding company level.
"In Africa‚ Bharti has adopted a strategy to offer low-priced services to gain subscriber market share. This has led to lower profit margins‚ with Bharti's overall ebitda margin of about 30% to 35% lagging behind MTN's 40% to 45%‚ although Bharti's absolute ebitda growth in Africa has been far higher than MTN's‚" read Moody's report.
Source: I-Net Bridge
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