Airtel's Rs 200 Billion NBFC Push Won't Strain Cash Flows: Citi

The report noted that Bharti Airtel currently generates approximately Rs 600 billion in annual consolidated free cash flow (excluding spectrum costs). Additionally, Airtel has initiated the final 75 per cent call on its Rs 210 billion partly-paid rights issue. Citi Research stated that the proposed NBFC capital infusion is unlikely to materially impact Airtel's leverage or cash flows.

Over the past two years, Bharti has built a strong lending service provider model by integrating technology, data, and customer insights. It now intends to integrate this capability with its NBFC and scale the business using its balance sheet.

"Given Bharti's strong FCF generation and upcoming rights issue payment, this foray should not materially weigh on leverage or cash flows, in our view. That said, achieving optimal capital utilisation with efficient risk-adjusted returns and meaningful scale typically takes a few years for lending platforms," the report said.

Citi Research described the NBFC expansion as a "natural adjacency" for Airtel, enabling the telecom major to diversify its portfolio and develop a new growth engine. Over the past two years, Airtel has strengthened its lending service provider (LSP) model by integrating technology, data analytics, and customer insights.

Following the recent approval from the Reserve Bank of India (RBI) to operate as an NBFC, Airtel has announced plans to scale the business by combining its existing digital credit engine with its own balance sheet.

Airtel's digital credit engine has already achieved cumulative disbursements of Rs 90 billion, with a monthly run rate exceeding Rs 5 billion. The platform is supported by underwriting capabilities, portfolio management systems, and real-time risk monitoring.

Citi Research further observed that the NBFC, licensed by the RBI on February 13, will leverage Airtel's extensive customer base, digital assets, and distribution strength. The strategy will also draw upon Airtel's data analytics capabilities, backed by a team of over 500 data scientists.

The report indicated that evaluating Airtel's NBFC strategy will depend on factors including scalability of the credit engine, underwriting discipline, product diversification beyond personal and gold loans, and operational separation between NBFC and LSP layers.

Citi Research cautioned that optimal capital utilisation, efficient risk-adjusted returns, and meaningful scale-up typically take several years in lending businesses.

Key risks to the outlook include heightened competitive intensity in India's mobile segment, delays in tariff hikes, higher-than-expected 5G capital expenditure, pressure on EBITDA from homes and DTH businesses, and weaker performance in the Africa operations.

- ANI