Supreme Court’s AGR decision
The most anticipated Supreme Court verdict has come out. Supreme Court has provided a ten-year time span to telecom companies on Tuesday for the payment of Adjusted Gross Revenue (AGR) – allied to the dues of the Department of Telecommunications (DoT). The apex court stated that the telecom company should make payment of 10% of the AGR- related dues by 31st March 2021. In addition, Supreme Court AGR decision stated that every year the payment has to be made by 7th February. This Supreme Court AGR decision will assuredly add pressure on persecuted Vodafone Idea which beholds more than rupees 50,000 crore, in AGR related debt, say the market experts. Adhering the verdict, shares of Vodafone Idea traded nearly 19% down at rupees 8.28 at around 12.30 pm Indian Standard Time, although the standard mark BSE Sensex was up 0.63 percent at 38’871. Bharti Airtel and Jio’s parent Reliance Industries shares traded 4.69% and 1.15% up at Rupees 538.05 and Rupees 2,102.45 accordingly.
What are the experts saying about this situation?
In a statement, Vice President of Research Religare Broking – Ajit Mishra said that the Supreme Court AGR decision is constructive for Bharti Airtel. Nevertheless, it is destructive for the shares of Vodafone Idea, as they still have to pay a debt of 10 percent. He further added that it is necessary to examine whether the parent will finance shares of Vodafone Idea. Or else, this situation will surely end up being a game of just the two players. As per Hemang Jani, Head Equity Strategist, Broking, and Strategist of Motilal Oswal Financial Services stated that the company expects Bharti Airtel to be capable to supervise payment with a clear flow of cash of over Rupees 10,000 crore in Financial Year 2020. This includes the no excise hike built. However, according to the statement of Mayuresh Joshi, Head- Equity Research of William O’ Neil India, the government would opt to prevent a fortification in the telecom sector. Every year after SC AGR decision there will be at least an outflow of Rupees 5,000 crore, for shares of Vodafone Idea. To shield the cash flow, investors must think and observe that up to which extent an increase can come in Average revenue per user (ARPU) for Vodafone Idea to support the EBITDA.
Why Vodafone Idea is facing such an issue?
Amongst the top telecom companies, Vodafone Idea has uncertain and weak balance sheets. According to the reports posted by telecom major there was a loss of Rs 25,460 crore in the June quarter, hence, the telecom is looking forward to raising money and reconstruct. It has started losing its subscribers after the Supreme Court AGR decisions making it even worse for the telecom player. It is also siding competitions from top telco’s like Bharti Airtel and Jio.
The ARPU of the shares of the Vodafone Idea is far from sustainable. There is no value left which can result in huge debt and future dues. According to the database, subscriber number for the telecom was declined from 29.1 million (recorded in March end) to 27.98 million (recorded in June end) which was one of the major losses for the telecom. The 4G customer base fell from 10.56 crore to 10.46 crore. Hence in the previous quarter, the consequences pulled the ARPU down to Rs 114 from Rupees 121. According to the analysts, Vodafone Idea haven’t accounted for clearance of the outstanding fee of license to the government, putting an additional stress on their already stretched balance sheets. Shares of Vodafone Idea collapsed close to 23.4 percent lower at rupees 4.33.
The hard and fast decision of the Supreme Court of paying the AGR dues may result in forced shut down of the VodaIdea’s telecom journey. Without the support of any parent firm Vodafone and Idea would be forced to shut stop, the analysts seem divided, as the Supreme Court verdict may result in a two-player telecom duopoly market in India. VodaIdea’s journey may continue if the Supreme Court grants a span of 20 years to pay their debts. However many experts believe that the Supreme Court verdict won’t be harsh on the telecom companies and end their journey, rather would provide relief span to the companies to cope up with loss amid of the ongoing pandemic. The company was been asked to file affidavits within 5 days of the verdict in accordance with the proposal of clearing the dues. Nevertheless, Vodafone Idea assures the subscribers of India that being of the Major Telecom Company, it would continue to provide the best services and experiences. Further assuring that the services will continue as usual. Many of the experts also doubt the continuation of the Vodafone Idea Telecom journey as the shares, subscribers, and ARPU are decreasing on a daily basis. A fundraiser can however help the telecom players to come on track. The telecom companies must clear the dues of DoT and AGR in order to successfully continue. RCom, Aircel, and Videocon are positive for shares of Reliance Jio and Bharti Airtel as Supreme Court didn’t mention or say anything about them in the AGR decision. It is really doubtful that, the 10-year time frame would save VodafoneIdea’s telecom Journey. The Supreme Court Adjusted Gross Revenue decision favors the company with the highest shares and cleared dues. However, the Judgment is very firm about payment of AGR on February 7 each year. This is almost impossible for Vodafone Idea Ltd as they are drowned in huge debts and the revenue of their Telco’s is decreasing year after year. According to the statement of Vodafone Idea on 30th June 2020, says that capability of continuing as a telecom company depends on the final verdict of the Supreme Court and also on whether the supreme courts allow the company to make a payment of dues of Adjusted Gross Revenue (AGR) over the upcoming 20 years. The final judgment of SC on AGR can destroy VodafoneIdea’s telecom journey.