Moody's Investors Service says Bharti Airtel strong financial results for the third quarter of the 2014 financial year ending March 2014 (Q3 FY2014) continue to support its Baa3 issuer and senior unsecured ratings.

''Underpinned by solid growth in its operations in India, Bharti reported strong nine-month results with year-on-year growth of 11% and 19% in reported revenue and EBITDA respectively,'' says Laura Acres, a Moody's Senior Vice President.

''Apart from its telemedia business, Bharti's main businesses in India all reported healthy year-on-year improvements and contributed to a 20% year-on-year increase in India's reported EBITDA,'' adds Acres, who is also the lead analyst for Bharti.

Building on the positive momentum in H1 2014, Bharti's mobile business in India added a further 5 million subscribers in Q3 2014, with the customer base now exceeding 198.5 million. While the subscriber base remains predominantly prepaid, the company also made good progress in increasing its data subscriber base, which increased 31% year-on-year. This growth contributed to a year-on-year increase of 5% in its mobile segment's overall average revenue per user (ARPU).

Whilst Bharti's operations in Africa also reported a healthy year-on-year increase of 11% in its subscriber base, the year-on-year increase in revenue was more modest at 2%, owing to unfavorable currency movements. Reported EBITDA for the nine-month period ended December 2013 was almost unchanged at USD 885 million, compared to USD 873 million in the same period last year. Reflecting lower capital investments, its nine-month free cash flow (FCF), using EBITDA-capital expenditure (capex) as a proxy, improved to USD 426 million from USD 384 million a year ago.

Bharti's financial metrics also improved, with gross reported debt falling to about Rs 733.1 billion from Rs 744 billion in the previous quarter. On a last 12 month basis, Moody's adjusted debt/EBITDA fell to about 2.9x from 3.1x. On a reported basis, net debt/EBITDA for the 12-month period ended Dec. 30, 2013 decreased to 2.06x, compared to 2.2x at 30 September 2013, well below the covenant threshold of 3.25x. With this decrease in debt and improvement in cash flows, Moody's adjusted FCF/debt for the 12-month period ended December 2013 improved to about 10.6% compared to about 7.8% at 30 September 2013.

The company's operating cash flow at the nine-month stage reached Rs 244.2 billion, which already exceeds the FY2013 full-year figure. While positive, Bharti will-over the next twelve months-also incur costs associated with the upcoming spectrum auctions and has targeted capex of USD2 billion. Notwithstanding this, we expect excess cash flow to continue to be used for debt repayments.

''Bharti also refinanced a part of its sizable USD debt with proceeds from its EUR7 50 million notes issue in December 2013 and the subsequent re-tap of EUR 250 million in January 2014, which is credit positive as it helps diversify Bharti's currency exposure,'' adds Acres.

Bharti's overall liquidity has remained excellent with about Rs 150.9 billion of cash and marketable investments and strong banking support. The company also extended its debt maturity profile after refinancing its acquisition debt with new five-year Euro-denominated bonds. The upcoming auction costs for 1800MHz and 900Mhz spectrums will represent the only major committed expenditures in the next 12 months, although we expect such expenditures to be contained within the rating.

The rating outlook is stable, based on the 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.

The rating may experience upward pressure should Bharti's overall credit profile continue to strengthen; in particular Moody's would like to see Bharti reduce consolidated adjusted debt/EBITDA to below 2.0x and for consolidated, adjusted FCF-to-debt to exceed 10%.

We would also like to see a track-record that shows that some of its key markets outside of India (such as Nigeria) demonstrate the ability to upstream cash flows to Bharti, while the operating performance of those subsidiaries remains solid.

Downward pressure could arise should competition intensify in any of its key markets, but particularly for the Indian wireless business, such that its key operations and/or subsidiaries report materially declining margins, or Bharti fails to continue with its deleveraging strategy. Evidence of this trend includes consolidated adjusted debt/EBITDA remaining above 3.0x, consolidated free cash flow/debt remaining below 5%, or EBITDA margins falling below 35%.

Shares of the company gained Rs 5.25, or 1.74%, to trade at Rs 306.90. The total volume of shares traded was 272,303 at the BSE (12.42 p.m., Thursday).