Vodafone Idea may survive if AGR payment spread over minimum 15 years: Analysts

KOLKATA & MUMBAI: Vodafone Idea Limited’s chances of survival hinge on the company being allowed by the Supreme Court to stagger payment of its adjusted gross revenue (AGR) dues over at least 15 years, even though its competitiveness would deteriorate sharply, said analysts.

Even if payments are spread over 20 years, the financially stressed telco will have to pay more than $700 million (over Rs 5200 crore ) in annual payouts, they said.

Brokerage Kotak Institutional Equities said Bharti Airtel will also take a hit in absolute terms due to its larger AGR payout compared to the self-assessed level, but it would still gain market share in the long run if VIL shuts or ends up as a weak fringe player.

IIFL Securities said the government would also take a huge blow if VIL went bankrupt as it stands to lose out on a whopping Rs 1.3 lakh crore in total dues from the struggling telecom carrier, including Rs 88,500 crore in deferred spectrum liabilities.

Experts said that even if VIL survives, courtesy a staggered AGR dues repayment over 15 years or more, the telco would require significant tariff hikes and capital infusion to arrest a rapid market share decline in a sector likely to be dominated by market leader Reliance Jio Infocomm and No 2 telco, Bharti Airtel.

Rajiv Sharma, research head at SBICap Securities, said VIL would consider shutting down if asked to clear its AGR dues in less than 15 years. But even if allowed a payment tenure of 15 years or more, the telco would still need average revenue per user (ARPU) to jump more than 40% from current levels to Rs 220 by the start of 2022-23, when it would need to start paying for spectrum, after the end of the two-year moratorium. This, to be able to invest at least $1-1.5 billion required annually for expanding 4G networks meaningfully in future to combat Jio and Airtel.

IIFL Securities, however, expects the government to provide relief to VIL by way of a reduction in licence fees and spectrum usage charges (SUC), simplifying the definition of AGR and even allowing GST set-off (of more than Rs 7,000 crore).

Goldman Sachs estimates VIL’s annual AGR payment at $710 million, nearly twice that of Bharti Airtel’s $360 million, if both telcos are allowed to repay over a 20-year span at 8% interest as requested by the telecom department. This, it said, would be in addition to $1.9 billion and $1.2 billion annual payouts that VIL and Bharti Airtel, respectively, would need to make towards deferred spectrum liabilities that would kick in from FY23.

Shares of VIL closed 5.38% higher at Rs 3.30 while those of Bharti Airtel closed 4.39 % higher at Rs 444.9 on the BSE on Thursday.

On Wednesday, the Supreme Court had scrapped the self-assessment of AGR dues but agreed to consider the government’s plea on allowing impacted telcos such as VIL, Bharti Airtel and Tata Teleservices to stagger their payments over 20 years or less. The matter will be taken up at the next hearing, scheduled after two weeks.

Sanjay Kapoor, ex-CEO of Bharti Airtel, said he expected the Sunil Mittal-led telco to clear its AGR dues in full as “its balance sheet allows it” but called VIL’s condition “precarious”, saying the latter’s chances of attracting potential investment even from external strategic investors were now bleak.

Goldman Sachs pegged Bharti Airtel’s cash balance at $2.3 billion (after its recent AGR payments to the government), saying the telco “may need to raise additional capital if asked to pay the full AGR amount upfront”. It said it saw limited impact on the company’s capex and estimated the telco to generate “$1.5 billion of free cash flows (FCF) in FY21”.

As per Monday’s court filings, the government has estimated VIL’s dues at Rs 58,254 crore, Bharti Airtel’s at Rs 43,980 crore and Tata Teleservices’ at Rs 16,798 crore. So far, Vodafone Idea has paid Rs 6,854 crore, Airtel, Rs 18,0004 crore and Tata Tele, Rs 4,197 crore.

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