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SC AGR Verdict | Here's why Vodafone Idea fell, but Airtel rose; an expert take on the verdict

Telecom companies will submit undertaking to pay AGR dues as per Supreme Court order and will pay 10 percent upfront.

September 01, 2020 / 10:18 PM IST

The Supreme Court (SC) on September 1 finally pronounced a verdict in the AGR case, permitting staggered payment of dues over the next 10 years. Bharti Airtel stock gained 5 percent, but Vodafone Idea tanked by 15 percent intraday after the verdict.

Experts say this is good for telecom companies even though the period of 10 years is lesser than the expected of 15-20 years. They say the verdict could work in favour of Reliance Jio and Bharti Airtel, but might be a matter of survival for Vodafone Idea.

"The SC verdict giving a 10-year time frame for payment of AGR dues with 10 percent upfront payment can be regarded as reasonably fair. Since the SC has not said anything about the dues for Reliance Communications, Aircel and Videocon, this is certainly very positive for Reliance Jio and Bharti Airtel. However, the 10-year time frame puts a question mark on the survival of Vodafone," VK Vijaya Kumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

Reliance Industries, which owns Jio, was up over 1 percent at Rs 2,105.75 and Reliance Communications climbed 5 percent at the time of publishing this copy.

Kumar feels Indian telecom industry is moving to a virtual duopoly, which  is not desirable.


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For the stock market, the verdict is mixed, he said. Since it is positive for Bharti and RIL, these two heavy weight stocks and are likely to support the market.

The trouble for Vodafone will not only cost its stock but also impact the stocks of banks that have lent to Vodafone, Vijaya Kumar said.

Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking also feels select banks could see some pressure in the near term which have exposure to Vodafone Idea as staggered payment allowed for 10 years instead of company /Government demanded 15/20 years. "And investor will wait and watch mode as tomorrow SC also give hearing on interest charged on the interest component for the moratorium."

The Supreme Court in its judgement said it has allowed telecom companies for staggered payment of adjusted gross revenue (AGR) dues over the next 10 years. The 10-year payment timeline will begin from April 1, 2021.

Telecom companies will submit undertaking to pay AGR dues as per Supreme Court order and will pay 10 percent upfront.

Any default in AGR due payments would invite interest, penalty, along with contempt of Court, said the Supreme Court.

In case of spectrum sale, the court agreed that whether spectrum sale can be allowed under Insolvency & Bankruptcy Code (IBC) is to be decided by National Company Law Tribunal, reports CNBC-TV18.

As per Bharti counsel, option of review and curative petition is available with telcos for two things - inclusion of spectrum usage charge (SUC) related charges as the case was only related to License fee and timelines of payment. Elimination of SUC in the liability could reduce the liability by around one third, said Hemang Jani, Head Equity Strategist, Broking & Distribution at Motilal Oswal Financial Services.

He also feels the verdict is positive for Bharti Airtel and Reliance Industries, as liability of Aircel (Rs 14,000 crore) and Videocon (Rs 1,300 crore) will not fall on Bharti, and Reliance Communications (Rs 31,000 crore) will not fall on Reliance Jio who have acquired their spectrum.

"Assuming 8 percent interest rate, Bharti and Vodafone Idea will now have to pay annually Rs 3,900 crore and Rs 7,500 crore respectively. With zero percent interest rate, this reduces to Rs 2,600 crore/Rs 5,000 crore respectively," Jani said.

He expects Bharti to be able to manage the payment with a free cash flow (FCF) of over Rs 10,000 crore in FY20 with no tariff hike built, while Vodafone Idea with EBITDA of Rs 6,000 crore and annual payment should find it difficult to manage.

Abhimanyu Sofat, Head of Research, IIFL Securities, said, "The judgement is a relief for Bharti Airtel as they won't have to pay for old dues of companies from whom they bought spectrum. The window for vodafone to raise funds, have better models and give paybacks commitment is small which is adding the pressure on the stock."

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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