By Priyanka Bansal

India Ratings and Research (Ind-Ra) has affirmed Beetel Teletech Limited’s (Beetel; erstwhile Brightstar Telecommunications India Limited) Long-Term Issuer Rating at ‘IND BBB+’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based working capital limits*

-

-

-

INR2,800 (reduced from INR3,859)

IND BBB+/Stable/IND A2

Affirmed

Non-fund-based limits*

-

-

-

INR2,000 (increased from INR750)

IND BBB+/Stable/IND A2

Affirmed

Term loan

-

-

FY26

INR527 (reduced from INR700)

IND BBB+/Stable/IND A2

Affirmed

*Some of the limits are interchangeable between fund-based and non-fund-based limits

ANALYTICAL APPROACH: Ind-Ra has changed its rating approach owing to a change in the shareholding of Beetel. The company’s previous shareholder—Brightstar Logistics Pte. Ltd (part of Brightstar Corporation) transferred its 51% shareholding to Eiesha Limited (a part of the Bharti Mittal family group) during FY21. The Bharti Mittal family group entities and its affiliates now hold nearly 100% shareholding of Beetel. The ratings of Beetel now factor in the company’s strong operational and strategic linkages with the Bharti Mittal Family Group (as compared to the previous strong operational and strategic linkages with Brightstar), as assessed under Ind-Ra’s criteria on Parent and Subsidiary Rating Linkage’

KEY RATING DRIVERS

Strong Support from Bharti Mittal Family Group: Ind-Ra believes that now there exists strong operational and strategic linkages between Beetel and Bharti Mittal Family Group, post the group’s increase in shareholding in Beetel to 97.1% during FY21 (previously: 46.1%).  The Bharti Mittal Family Group has operational control of the company through the board of directors, wherein three out of four board of directors are common with few Bharti Mittal Family Group entities. Financial flexibility and implicit financial support is now derived from Beetel being a part of the Bharti Mittal Family Group. Oversight on the operational and treasury strategies by the officials also looking after other entities in the group indicates strong operational linkages.

The ratings factors in the strong support expressed by the group towards the operational, managerial and financial aspects of Beetel. Additionally, tangible financial support has also flown in the form of a USD5 million term loan, which was extended by Brightstar Corp, and now has novated to Eiesha Limited during FY21. 

Improvement in the Business Profile Through New and Existing Opportunities: Ind-Ra believes that Beetel’s business model will transform and improve in the medium term owing to the company entering into agreements with large counterparties such as Bharti Airtel Limited (BAL: debt rated at IND A1+) and its subsidiaries for the procurement and management of logistic operations for products such as wifi dongles, broadband routers, direct-to-home  and optical network terminal devices, etc. The company will also benefit from making new alliances with vendors such as Plantronics Inc, TPV Technology India Pvt Ltd, Siemens Limited etc for value added distribution of hardware and software related products and services. These new business opportunities will support the incremental business from the existing customers in B2B and B2C domain.  While Beetel will utilise its existing network and relationship with vendors, the agency believes that the long-term business profile of Beetel is expected to improve in the following ways:

- by providing revenue and profitability visibility (revenue from large counterparties such as Bharti Group and its affiliates, and revenue through vendors namely, Samsung India Electronics Pvt Ltd, Polycon Asia Pacific Pte Ltd, Huawei Telecommunications (I) Co. Pvt, Radwin Limited, etc is expected by the agency to contribute a significant portion of Beetel’s total revenue over the medium term as these are high-value contracts)

- through surety in term of collections (timely collection and no major bad debts expected given strong credit profile of these counterparties).

- through diversification in the revenue profile

Decline in Revenue and EBITDA in FY21; Medium-term Improvement Likely: Beetel’s revenue declined to INR8.3 billion in FY21 (FY20: INR14 billion) primarily owing to a significant decline in company’s enterprise business segment (contributed 33% of total revenue in FY21; revenue declined to INR2.7 billion in FY21 (FY20: INR6 billion) owing to the reduced orders from the corporates impacted by COVID-19 disruptions). However, the company’s other two business segments - the networks segment (contributed 44% to total revenue in FY21) and the consumer segment (23%) - continued to report increased revenue of INR3.6 billion in FY21 (FY20: INR2.9 billion) and INR1.9 billion (INR1.3 billion), respectively. This growth was led by the pandemic-led increased demand for networking products to improve the work-from-home experience, while ensuring the security of data for large corporates and hence, increased revenue in the networks segment. The consumer-facing business continued to be driven by in-house developed products such as mobile phones and camera accessories.

While, the gross profit margins improved in FY21, the decline in revenue resulted in increased selling and administration expenses and employee cost as a percentage of revenue and, hence, a contraction in EBITDA margins to 0.4% (FY20: 2.4%) and absolute EBITDA to INR0.03 billion (INR0.3 billion) in FY21. The second wave of COVID in the first three of months of FY22 continued to impact the operations in FY22, resulting in Beetel generating revenue of INR4.8 billion and EBITDA margin of 0.5% in 1HFY22.

Ind-Ra expects the revenue to pick up in the medium term as the new contract entered with Bharti Airtel and subsidiaries and incremental business from existing alliances such as Samsung India Electronics, Polycon Asia Pacific, etc  shall ensure steady revenue stream in the coming years. While the margins are expected to range between 1% and 3% over the medium term, the company’s consistent efforts to exit from the low-margin business lines, tie-ups with new suppliers and entry into the new segments geared towards automation and servicing of hardware, which typically generate higher margins are expected to support improvement in its financial profile in the coming years.

Liquidity Indicator - Adequate: Beetel’s liquidity is supported by cash and equivalents of INR0.2 billion at FYE21 and positive cash flow from operations (FY21: INR1 billion; FY20: INR0.2 billion). The company, also maintains a healthy working capital cycle of about 40 days (FY21: 41 days and FY20: 39 days). Additionally, the sufficient working capital facilities available to meet any cash flow mismatches/ shortfalls and moderate working capital utilisation of such limits (Beetel’s average utilisation of the fund based working capital facilities was about 66% in the 12 months ended October 2021) also supports the liquidity. 

Additionally, the agency believes that Beetel’s liquidity is supported by the financial flexibility it derives from being part of Bharti Mittal Family Group, enabling it to raise funds from banks at competitive rates and have diversified banking exposure.

Moderate Counterparty Risk: Beetel sells only against bank guarantees or credit insurance to mitigate the counterparty risk. There were bad debts and provisioning for bad debts in FY21 of roughly INR70 million (merely 1% of revenue). The company generated about 30% of its revenue from the top 10 customers, all of which are either large corporates (Flipkart India Private Limited; Bharti Airtel and subsidiaries), or are a part of the large conglomerates (Reliance Retail Private Limited; Infiniti Retail Private Limited). Beetel has strong linkages with its vendors on account of the longstanding relationships. While, its top five vendors account for about 76% of the company’s materials and components, indicating supplier concentration risk, the company works closely with its vendors to avoid stock obsolescence and write-offs on slow-moving inventory. The company has, historically, not created any major provisions for slow moving/ obsolete stock.

Weak Credit Profile: Beetel’s credit profile is weak due to weak EBITDA-levels till FY21; however, Ind-Ra expects the profile to improve in the medium term owing to the stabilisation of EBITDA margins and increase in the revenue. While, the gross adjusted debt (including lease liabilities) of Beetel reduced to INR2.8 billion at FYE21 (FYE20: INR3.7 billion), its credit metrics remained weak in FY21.

Beetel’s interest coverage (operating EBITDA/interest expenses) and net leverage (total debt less cash/operating EBITDA) in FY21 stood at 0.1x and 80.03x, respectively at FYE21. Its gross adjusted debt reduced further to INR2.1 billion at end-1HFY22. Beetel had a negative net worth of INR1.5 million in FY21 (FY20: negative INR1.2 billion), largely led by net losses from FY18- FY21 (except for marginal net profits in FY20). Given the expected improvement in revenue and EBITDA over the medium term, Ind-Ra expects credit metrics to improve.

Highly Competitive Industry: The ratings continue to factor in the inherently low profitability in the distribution business, dependence on the performance of original equipment manufacturers, which operate in a dynamic and competitive environment, and the working capital-intensive nature of the business, which necessitates the maintaining of a liquidity cushion. Beetel is emerging as a growing player in the IT hardware and mobility products distribution space in India, with 400 channel partners. While cloud software is deflationary for overall hardware demand, it may present IT distributors with new opportunities in services, software distribution and hardware-as-a-service. Furthermore, the company expects the increased demand for products made in India will support the revenue. As companies try to reduce their hardware and software dependency on China, Beetel could be a key supplier to large corporates. 


RATING SENSITIVITIES

Positive: The ratings could be upgraded upon a significant improvement in Beetel’s financial and operational performance, which includes improvement in EBITDA generation leading to increased visibility of gross interest coverage exceeding 1.2x on a sustainable basis, while maintaining comfortable liquidity position.

Negative: The ratings could be downgraded upon weakening of the linkages with the Bharti Mittal Family group and/ or its inability to maintain positive EBITDA generation leading to the gross interest coverage sustaining below 1x or any stress on the liquidity profile on a sustainable basis.


COMPANY PROFILE

Beetel is a mobile and accessories distribution company, with a growing services portfolio, in India. It also provides related services through general trade, organised trade and B2B channels. During FY21, there is change in shareholding in Beetel, wherein Brightstar corp sold its 51% stake in Beetel to Eiesha Limited making Beetel a nearly 100% Bharti Mittal Family Group entity from a JV earlier. Post this change in shareholding, name of the company also got changed to Beetel Teletech Limited w.e.f 16 Feb 2021 from Brightstar Telecommunications India Limited earlier.

FINANCIAL SUMMARY

Particulars

FY21

FY20

Revenue (INR billion)

8.2

14.0

EBITDA (INR billion)

0.03

0.3

Total adjusted debt (INR billion)

2.8

3.7

Gross interest expense (INR billion)

0.2

0.3

Interest coverage (x)

0.10

1.1

Net leverage (x)

80.03

10.18

Source: Beetel, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

4 September 2020

21 June 2019

27 February 2018

Issuer rating

Long-term

-

IND BBB+/Stable

IND BBB+/Stable

IND BBB+/Stable

-

Fund-based working capital limits

Long-term/Short-term

INR2,800

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

IND A-(SO)/Stable/IND A2+ (SO)

Non-fund-based working capital limits

Long-term/Short-term

INR2,000

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

IND A-(SO)/Stable/IND A2+ (SO)

Term loans

Long-term/Short-term

INR527

IND BBB+/Stable/IND A2

IND BBB+/Stable/IND A2

-

-


COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based working capital limits

Low

Non-fund-based working capital limits

Low

Term loans

Low

 

 

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Analyst Names

  • Primary Analyst

    Priyanka Bansal

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40356148

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121