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Last Updated : Jun 25, 2020 11:54 AM IST | Source: Moneycontrol.com

The AGR woes: Airtel, RJio well-positioned to sail through; Vodafone stares at uncertainty

Pronouncing its order in the AGR case hearing on June 11, the Supreme Court struck down over Rs 4 lakh crore demand against the public sector undertakings

Shares of Bharti Infratel jumped almost 7 percent while those of Bharti Airtel rose by 1.50 percent, keeping their sectoral indices in the green on BSE on June 12.

The BSE Telecom index closed 2.29 percent higher at 1,298.85.


Both - Bharti Infratel and Airtel - climbed after suffering losses in June 11's session on the back of the Supreme Court verdict on AGR dues.

Shares of Vodafone Idea, closed 8.09 percent higher at Rs 10.15 on BSE.

Analysts are of the view that the hopes of relief on AGR front for the telecom operators have been dashed.

"Any hopes that the Supreme Court would reconsider its judgment and reduce the amount of AGR dues for telecom operators appear to have been dashed completely. Even the government's proposal of offering a 20-year window for staggered payments hasn't yet been accepted by the court. It has asked the telcos to present their views on the time frame to pay the dues and the nature of guarantees," said Ajay Bodke, CEO & Chief Portfolio Manager (PMS), Prabhudas Lilladher.

"Whether the telcos would be comfortable offering personal guarantees of their directors as mentioned by the SC during the course of the hearing is the key. Any denial of personal guarantees may not be looked upon favourably by the court. The directors of telcos are surely in the most unenviable position," Bodke further added.

While the supreme court's comment that they cannot allow staggered payment without any undertakings and guarantees from the telecom companies are sentimentally negative for the sector, experts also believe we need to wait for the final verdict before coming to any conclusion.

"If the Supreme Court accepts telecom companies' plea of staggered payments, even if for a shorter time frame, we believe that it will be positive for the sector. However, in case the Supreme does not agree to the proposal of staggered payments then it would be negative for Vodafone Idea given their weak financial position," said Jyoti Roy, DVP - Equity Strategist, Angel Broking.

"If allowed reasonable time by the Supreme Court, telecom companies can raise tariffs in order to cover for the additional outflows given that there is enough headroom to raise tariffs from the current levels.

If the telecom companies are able to address the Supreme Court’s concerns then we do not see any reason for the Supreme Court not to agree to the telecom companies’ proposal for staggered payment of AGR dues," Roy further said.

The Supreme Court, on June 11, took cognizance of the central government and telcos’ plea that if no staggered payment option was given, some telcos would have to close down.

As per brokerage firm Motilal Oswal Financial Services, with insufficient porting capacity, consumers could face severe problems, with banks potentially suffering major NPAs.

Bharti and Vodafone Idea have put forward that their telecom licenses may be revoked by DoT in case they default on their timelines; Vodafone Idea has clearly mentioned that it does not have the capacity to

provide bank guarantees of Rs 50,000 crore, Motilal Oswal pointed out.

Motilal Oswal is bullish on Bharti and RJio.

"We maintain our bullish stance on Bharti Airtel, with a target price of Rs 710 on SOTP, assigning 12 times on FY22E India Wireless EBITDA and 6 times on Africa," Motilal Oswal said.

"On the other hand, we assign a target price of Rs 885 for RJio, assigning 13 times on FY22E EBITDA post its debt reduction plans and ongoing series of funding from global investors. We have forecast FY22E ARPUs of Rs 185 and Rs 148 for Bharti Airtel and RJio, respectively, and are yet to build in material tariff hikes up to FY22, thus providing an incremental upside on EBITDA," Motilal Oswal said.

As per Motilal's estimates, if the apex court grants a 20-year staggered option plan to the incumbents to pay their AGR dues, maintaining the NPV of the balance AGR dues at an 8 percent interest rate, this would result in cash outgo of Rs 2,700 crore for Bharti Airtel and Rs 5,200 crore for Vodafone Idea per annum over a 20-year period.

"Considering Vodafone Idea’s liquidity constraints, it needs a nearly 50 percent ARPU to increase to achieve EBITDA of Rs 30,000 crore by FY22E. This is to bridge the gap of Rs 12,800 crore EBITDA in FY22 against cash requirement of Rs 16,500 crore in deferred spectrum liabilities, Rs 5,200 crore in annual AGR payment, Rs 3,000 crore in cash interest cost to lenders, and the CAPEX of nearly Rs 5,200 crore. This is assuming there is no further subscriber churn, which also seems unlikely given the weak network capability and negative consumer sentiment," Motilal Oswal said.

For Bharti Airtel, the AGR dues as per DoT is Rs 35,500 crore whereas it is Rs 13,000 crore as per the company's self-assessment. So far, it has paid Rs 18,800 crore. As per DoT, it still has to pay Rs 17,500 crore.

For Vodafone Idea, DoT claims that the remaining payable is Rs 53,000 crore while the company claims it is Rs 21,500 crore. So far, the company has paid Rs 6,900 crore. As per DoT, it still has to pay Rs 46,100 crore.

Pronouncing its order in the AGR case hearing on June 11, the Supreme Court struck down over Rs 4 lakh crore demand against the public sector undertakings (PSUs).

The Supreme Court of India has directed the Department of Telecommunications (DoT) to reconsider demands raised against public sector utilities that amount to over Rs 4 lakh crore.

The Supreme Court adjourned the hearing on the adjusted gross revenue (AGR) case till June 18.

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

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First Published on Jun 12, 2020 12:38 pm