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Last Updated : Feb 17, 2020 11:49 AM IST | Source: Moneycontrol.com

Bharti pays Rs 10,000 cr to DoT, Motilal Oswal raises price target to Rs 650

Given the adverse situation for VIL, Reliance Jio and Bharti could gain disproportionately, says Motilal Oswal.

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Bharti Airtel share price gained 0.6 percent to hit a record high of Rs 568.60 intraday on February 17 after the telecom operator paid Rs 10,000 crore to the government towards adjusted gross revenue (AGR) liability.

Bharti Airtel said it paid Rs 10,000 crore on behalf of Airtel, Hexacom and Telenor to the Department of Telecommunications (DoT) with respect to AGR liability, CNBC-TV18 reported.

"We will make balance payment after self-assessment exercise and will submit supportive details at time of making the balance payment," it added.


Motilal Oswal remained bullish on the stock, given the adverse situation for Vodafone Idea.

Bharti Airtel was one of biggest gainers among largecaps, doubling in a year’s period. It was quoting at Rs 566.20, up Rs 1.10, or 0.19 percent, on the BSE at 1036 hours IST.

The telecom operator may complete its self-assessment exercise in a week and could make remaining payment by next hearing ie on March 17, sources told CNBC-TV18.

The Supreme Court on February 14 came down hard on the government for not recovering AGR liability from telecom companies even after the lapse of  January 23 deadline.

The telecom companies had filed a plea in the top court to allow them to engage with the DoT for verifying the amount and deciding the payment modalities.

Instead of offering relief, the court was critical of both the telecom companies and DoT for failing to comply with its order on AGR.

The case will now be heard on March 17, on which top officials of the companies and the department will have to be present.

The court’s hard stance forced DoT to demand immediate payment of the complete AGR liability. It leaves little room for telecom companies to get relief from legal or government sources.

The total AGR liability stands at Rs 1.47 lakh crore, of which Bharti and Vodafone Idea (including spectrum) need to pay Rs 34,000 and Rs 44,000 crore.

Bharti Airtel has already raised $3 billion (around Rs 21,000 crore) in January to pay AGR dues, which was its plan-B. The remaining Rs 13,000 crore could be funded by bank loans, sources said.

But it looks difficult for Vodafone Idea which increases risk of shutdown.

"The impact of this could have serious repercussion on the telecom and banking sectors in particular and the economy in general with large magnitude of debt default, job losses and customer annoyance as Vodafone Idea faces an imminent risk of shutdown. Even with the will to make payment of complete AGR liability, VIL's stressed balance sheet (only Rs 12,530 crore cash) will make it difficult to pay such a large

magnitude of liability in such a short period," Motilal Oswal said.

Vodafone Idea has a gross debt of Rs 1.2 lakh crore, of which around Rs 90,000 crore is government's deferred spectrum debt, while around Rs 25,000 crore is bank debt.

"A default of such a large scale could increase India’s fiscal deficit by around 40bp, thus having the deepest impact on government receipts despite winning the suit, while creating ripples in the banking sector. Further nearly 300 million subscribers (around 25 percent of India’s population) may face the annoyance of network shutdown and churn, while around 13,500 employees could face job losses. This is merely

the direct impact, while the indirect impact on multiple vendors and other stakeholders could be even worse," the brokerage said.

Given the adverse situation for VIL, Reliance Jio and Bharti could gain disproportionately, it feels.

"Thus, irrespective of an adverse ruling, Bharti has best hedged position even assuming that it pays the AGR liability," it said.

"Assuming subscriber share of 40:60 for Reliance Jio/Bharti, both telcos could see EBITDA addition of Rs 15,000/Rs 10,000 crore with 50 percent margin, implying a jump of 29/22 percent on FY22E EBITDA to Rs 67,100 crore/Rs 54,700 crore. However, the exponential pace of data volume growth coming from unlimited plans has already burdened the networks with subpar speeds," it added.

Hence, Motilal Oswal increased its target price for Bharti Airtel to Rs 650 (implying 15 percent potential upside from current levels) on SOTP, assigning 12x on FY22E India wireless EBITDA and 6x on Africa.

"If we assume a duopoly scenario, Bharti can generate incremental Rs 10,000 crore EBITDA assuming it gets 40 percent revenue share and 50 percent EBITDA margin (building incremental network cost for higher capex intensity). Thus, it can garner EBITDA of Rs 55,000 crore in FY22, without factoring any further ARPU increase. At 10x EV/EBITDA, it could derive a blue-sky target price of Rs 825," it said.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Feb 17, 2020 11:49 am