The long-awaited Supreme Court verdict gave telecom operators a 10-year deadline on Tuesday to pay fees related to Adjusted Gross Revenue (AGR) to the Department of Telecommunications (DoT). The higher court said that telecommunications companies should pay 10 percent of AGR-related fees by March 31, 2021. In addition, it added that every year before February 7 a payment must be made.
Market experts believe that the ruling will undoubtedly put pressure on the beleaguered Vodafone Idea, which owes more than Rs 50 billion in AGR-related fees.
Following the verdict, the scrip traded almost 19 percent lower at Rs 8.28 around 12.30 pm (IST), while the benchmark BSE Sensex index was up 0.63 percent to 38.871.
Shares of Bharti Airtel and Jio’s parent, Reliance Industries, traded 4.69 percent and 1.15 percent at 538.05 and 2,102.45 rupees, respectively.
Ajit Mishra, Vice President of Research at Religare Broking, said: “SC’s ruling is positive for Bharti Airtel as it already has provisions. However, it is negative for Vodafone Idea, as they have to pay 10 percent in advance. We need to see if parents will fund Vodafone Idea. Otherwise it will be a two player game. ”
The bank also asked the managing director or CEO of the telecommunications companies in question to submit a commitment or personal guarantee within four weeks for the payment of fees.
Hemang Jani, Chief Equity, Brokerage and Distribution Strategist at Motilal Oswal Financial Services, said: “We expect Bharti to be able to handle the payment with a free cash flow of more than Rs 10 billion in fiscal 2020 with no fee increases.” .
On the other hand, Mayuresh Joshi, Head of Equity Research at William O’Neil India said: “The government would prefer to avoid a consolidation in the telecom sector. There will be a minimum outflow of Rs 5,000 crore for Vodafone Idea every year after SC order. After this hearing, investors should see to what extent the increase in Arpu (Average revenue per user) can come for Vodafone Idea to support EBITDA and protect its cash flow. ”
The infusion of capital by the parent and other asset monetization tools available to the telecom player can save Vodafone Idea, Joshi said, adding that the whole scenario is played out in the capital spending they will make and the upgrade of the network, which is essential to maintain the existing subscriber. on your own network.
The court also said that failure to pay AGR-related fees would incur a penalty, interest and contempt of court.
AK Prabhakar, Head of Research at IDBI Capital Markets said: “Strong companies will benefit from the ruling. Bharti Airtel will have better leverage to pay. However, Vodafone Idea will have difficulties. There is a chance that Idea will exit the game. Banks that have exposure to Idea also reacted negatively today. ”
“The sentence is very strict since the court said that telecommunications players have to pay the amount every February 7. This is not possible for Vodafone Idea because the company has a huge debt and the revenues are not up to par. Very soon it will become a two-player market, ”he said.
Here’s what other experts say:
Vikas Jain, Reliance Securities
Initial announcements to pay AGR quotas over 10 years are positive for telecoms stocks such as Bharti Airtel and positive for banking stocks that had a large exposure to the telecoms sector.
Abhimanyu Sofat, IIFL Securities
The sentence is a relief for Bharti Airtel, as they will not have to pay the old fees of the companies they bought spectrum from. The window for Vodafone to raise funds, have better models and offer a payback commitment is small, adding to the pressure on stocks.
VK Vijaya Kumar, Geojit Financial Services
The SC’s verdict that establishes a ten-year term for the payment of AGR fees with an initial payment of 10 percent can be considered reasonably fair. Since the SC has not said anything about the RCom, Aircel and Videocon quotas, this is certainly very positive for Reliance Jio and Bharti Airtel. However, the 10-year deadline puts a question mark on Vodafone’s survival. The transition of the Indian telecommunications industry to a virtual duopoly is not a desirable development.
.
