Telecom stocks faced selling pressure during September 19 trade as the Supreme Court rejected telecommunication companies' plea for the re-computation of adjusted gross revenue (AGR) dues.
Bharti Airtel and Vodafone Idea were among the telcos to have filed the curative petition, alleging grave error in the calculation of dues the department of telecommunication.
Shares of debt-laden telecom operator Vodafone Idea crashed over 15 percent. At 12.45 pm, Vi shares were quoting Rs 11.41 apiece on the NSE. Meanwhile Indus Towers' stock price which had plummeted over 14 percent, trimmed losses to quote Rs 397, down 7.5 percent.
Bharti Airtel shares were quoting Rs 1,701 apiece, up two percent on the NSE.
On August 28, 2024, Indus Towers' board approved a share buyback of 5.67 crore shares, which will increase Bharti Airtel's stake in the company to over 50 percent. This will made Indus Towers a subsidiary of Bharti Airtel.
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Vodafone Idea's curative petition in the AGR case sought three main reliefs: correcting arithmetic and clerical errors in the AGR demand; requesting that the penalty be limited to 50 percent of the shortfall; and revising the interest rate on the penalty to 2 percent above the State Bank of India's prime lending rate.
According to IIFL Securities, the cash flow situation for Vodafone Idea is expected to become more challenging without relief from the court. The dismissal of the curative petition brings a slight positive outlook for Bharti Airtel, especially concerning potential market share gains.
However, it remains to be seen whether Vodafone Idea can proceed with its debt-raising plans following the unfavorable Supreme Court verdict. Raising debt is crucial for Vodafone Idea to continue with its capital expenditure plans.
On September 6, Goldman Sachs reaffirmed its bearish rating on beleaguered telco Vodafone Idea. The brokerage believes that the country’s third-largest telecom operator will be unable to stop the relentless erosion of its market-share, despite its recent capital raise.
“Our analysis suggests a direct correlation between capex and revenue market share, and given our expectation of peers spending at least 50 percent higher capex versus Vodafone Idea, we forecast another 300 bps share loss for the company over the next 3-4 years,” said Goldman Sachs in its report.
In an optimistic scenario - where the company's adjusted gross revenue (AGR) dues are slashed by 65 percent, tariffs consistently increase, and no near-term government repayments are required - Goldman sees a best-case implied value per share of Rs 19.
On July 15, the Supreme Court acknowledged Vodafone Idea's submission challenging its 2019 ruling on payments owed to the government.
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