One-time fee indicates auction is poor fundraiser: Ambit

Ankur Rudra of Ambit Capital explains to CNBC-TV18 that the Cabinet approval of the one-time fee is an indicator that the government has realised that auction of spectrum is not a very viable route to raise revenue.

Below is an edited transcript of the analysis on CNBC-TV18 Q: What do you make of this one-time spectrum fee?
A: Clearly this is not exactly new. This is confirming what the EGoM recommended a couple of weeks ago and to that extent most of the results I think have been partly factored into the expectation on these stocks. The announcement was eagerly looked forward to by the market as ends the uncertainty around this issue.
The overall impact on Bharti is expected to be in the region of about Rs 4,500 to 5,000 crore which is in line with the government has eventually recommended so also for Idea. This is an indication of the government realising that auction of spectrum is unlikely to raise enough capital and most of the revenue has to be probably done via routes such as these. Q: Do you expect to see a relief rally on these stocks because many of them are moving up by about 1 to 3 percent?
A: I guess you have already begun to see the start of that right now. The rally is based on the fact that the most negative impact can be put behind. The rally might also be supported by expectations that the fee proposed by the Cabinet could be reduced going forward and total impact would be lower. Q: What is your estimate on the impact on EPS?
A: It would be difficult to exactly estimate the impact on EPS because there are too options. Some of the operators may choose to pay the entire amount upfront while some may choose to make a part payment now and defer the rest. So, we will wait for clarity from the operators and also the actual amount probably in the next few months before estimating the impact of EPS. Q: How would this change the dynamics of the industry?
A: I think the continuing theme for the industry is a rising cost structure for existing spectrum which will be held till 2014- 2017. Clearly the auctions indicate that in the future, the cost of spectrum also be higher. This reduces the ability of operators to maintain a high amount of volume-discounting and hence there will be a period where volume-discounting will reduce and actual price will be closer to list prices. Q: What is your estimate of what the pay-out for Bharti might be because we understand it would be something to the tune of Rs 5,030 crore which is higher than most analysts estimating it at (Rs 3,800 - Rs 4,800 crore)?
A: Our estimate was in the region of Rs 4,500 crore. We have assumed that Rs 3,800 crore would be the prospective levy assumed from December 2012 for spectrum held above 4.4 Mhz. But the cabinet is also talking about retrospective levy from July 2008 to November 2012 based on the 2001 pricing which will probably be indexed upwards by SBI PLR and that will add another Rs 600 to Rs 700 crore which probably could be the difference. Q: Has this retrospective levy been priced-in by most analysts?
A: There is no unanimity- some analysts have, while others haven’t. I think most analysts are currently pricing in a prospective levy because there is no clarity on how a retrospective levy will be priced.