Moody's Investors Services says that Bharti Airtel's operating performance for the second quarter ended Sept. 30, 2015 (Q2 2015/16) continues to support its Baa3 issuer and senior unsecured ratings.

On October 26, Bharti reported its results for Q2 2015/16, with revenues up 4.3% year on year to Rs 238 billion (USD 3.7 billion). Revenues from India, the largest revenue contributor, grew 10.3% from the prior year. Bharti also reported EBITDA of Rs 83 billion and EBITDA margin improved 0.8% year on year to 34.7% in 2Q 2015/16.

"After considering the pro forma effect of debt reduction from African tower asset sales, credit metrics for the 12 months to September 2015 remain broadly in line with our expectations. Bharti maintains strong momentum in its Indian mobile business which also continues to support its Baa3 credit profile," says Annalisa Di Chiara, a Moody's vice president and senior credit officer.

In India, total revenues growth was driven by mobile services which reported a solid growth of 12.3% reflecting the continued robustness of voice demand and a growing data segment. Mobile data revenue was up 60.3% in 2Q 2015/16 and contributed 21.5% of mobile segment revenues, compared to 14.5% in the same quarter last year. Key business lines in India all reported healthy year-on-year improvements drove EBITDA's increase to Rs 70 billion from Rs 61 billion over the same period last year. EBITDA margin also improved to 40.2% from 38.6%.

At the same time, Bharti's African operations, which accounted for 26% of total revenues, reported a 5.1% year-on-year increase in revenue on a constant currency basis and adjusting for the impact of divestment of the tower revenues. On a reported currency basis revenues were down 9.0% year-on-year owing to unfavourable USD appreciation and EBITDA margin declined 3.4% year on year to 20.2%.

Overall, Moody's estimates Bharti's adjusted leverage, as measured by adjusted debt/EBITDA, increased to around 2.9x for the 12 months to September 2015 from 2.8x at March year-end. This increase primarily reflects the recognition of an additional portion of deferred payment liabilities related to the March 2015 spectrum auctions.

Excluding such deferred payment liabilities related to the spectrum auctions, Bharti's adjusted leverage would have been around 2.4x for the 12 months to September 2015, evidencing the company fundamentally delivered from the prior year in line with our expectations.

Moody's expects Bharti will continue to deleverage on both an absolute and relative basis, such that its adjusted debt/EBITDA -including all spectrum deferred payment liabilities as debt and the application of tower proceeds to debt reduction- will trend towards 2.5x within the next 12 months.

The stable rating outlook reflects Moody's expectation that Bharti will continue to grow its core Indian and African wireless businesses, and that the group will continue to deleverage on both an absolute and relative basis.

Shares of the company gained Rs 0.7, or 0.2%, to trade at Rs 355.65. The total volume of shares traded was 19,801 at the BSE (10.03 a.m., Friday).