The AGR verdict is a positive for Bharti Airtel as it has got ten years to pay the spectrum charges out of which it needs to pay only 10 percent upfront.
As per media articles, the total dues of Bharti Airtel works to nearly Rs 44,000 crore out of which it has already paid nearly Rs 18,000 crore.
Hence, Bharti has already paid more than 10 percent of the upfront requirement. Bharti has already provided for nearly Rs 47,000 crore in its books, hence, there should not be any negative impact on P&L going forward.
Impact, if any, could be positive on any reversal of provision. As per our estimates, the company should be generating healthy free cash flows from FY21 onwards and in this context annual AGR payment of nearly Rs 4,400-4,700 crore should not be an issue.
We remain quite optimistic about Bharti Airtel with a price target of Rs 710.
The Supreme Court verdict is not as beneficial for Vodafone Idea as it is to Bharti Airtel. Vodafone was looking forward to a 20-year payment cycle which has now reduced to 10 years.
Out of the total AGR dues of nearly Rs 58,000 crore Vodafone Idea has paid only about Rs 7,900 crore till now.
Considering the high annual interest, depreciation and amortization cost the annual AGR dues could put further strain on the cash flows of the company.
However, if there is across the board increase in tariffs by the three players then it could provide a reprieve to Vodafone Idea in the future.
In regards to the spectrum obligation of insolvent companies, the Supreme Court has referred the matter to NCLT.
In the worst case, there could be a further liability on Reliance Jio and Bharti Airtel who have taken the spectrum from Reliance Communication, Videocon and Aircel.
After the Supreme Court verdict, the hangover of the AGR case is removed and going forward we need to watch how telecom operators increase tariffs.
(The author is Executive Vice President & Head of Fundamental Research at Kotak Securities)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.