The supreme court delivered its much-awaited verdict on AGR (Annual gross revenue) dues. While the telecom industry is preparing itself for a completely new era of growth, the verdict provides much-needed clarity to the companies in terms of their finances and the path they would want to take in the future.
The verdict, however, seems to be just a pause and not the end in itself as the option of filing the review petition remains open. The telecom companies could use it for their genuine concerns and as delaying tactics. Still, the verdict is a welcome step as it is expected to bring a lot of clarity for telecoms in terms of their future direction.
What is the AGR issue?
AGR is the basis on which the Department of Telecom (DoT) calculates the charges payable by operators. The telecom operators were unsatisfied with the practice of including non-core revenue from the sale of assets, interest on deposits, license fee and spectrum usage charges, rental income etc into the calculation of AGR. They demanded that AGR should only include revenue from core operations and other sources should be excluded.
The telecoms were also seeking a prolonged period of 15-20 years to clear their AGR dues. As per the DoT's submission, the total liability of telecom companies stands at Rs 119,292 crore. So far, telecom players have paid Rs 25,896 crore. The balance payment of Rs 93,520 crore remains due.
Bharti Airtel owes ~Rs 43,980 crore, it has paid Rs 18,004 crore so far while Vodafone Idea's dues are the highest at ~Rs 58,254 crore of which the company has paid Rs 6,354 crore and the balance due is Rs 51,400 crore. Tata Teleservices has paid Rs 4,197 crore out of the total due of Rs 16,798 crore, while Jio’s has cleared it total dues of Rs 194.7 crore.
What the verdict says:
In a major jolt to the telcos, the supreme court has upheld DoT's version of AGR definition. It has, however, considered the telcos’ pleas for an extended timeline to make hefty AGR payments. Against the request for 15-20 year timelines, the court has given a 10-year repayment term at 8% MCLR. It requires payment of 10% dues upfront. The rest of the dues are payable annually from Mar’22.
What's the impact:
With this verdict, the balance sheets of both VIL and Bharti will take a blow, though Bharti Airtel appears to be in a much better position. Considering the increased financial load, tariff hike looks imminent for these companies to survive. As per an estimate, Vodafone-Idea will require to increase its ARPU from Rs 114 currently to Rs 140 to manage the AGR payment cost along with the impending CAPEX requirement.
In order to survive, if VIL triggers a price hike or if the market turns duopoly, Bharti Airtel stands to benefit significantly. Hence, a positive outlook remains on Bharti Airtel, the sailings remain tough for Vodafone Idea, and the outlook negative remains on the company.
Get daily intraday tips here and not to forget to get benefitted with the Bank Nifty prediction for tomorrow and make money like true professionals of the stock market.
You
should Trade Less But Trade Accurately & this is Achieved with our Tip.
