Jio, Bharti Airtel may gain share after AGR verdict; Vodafone Idea may have no cash left for capex

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Updated: Oct 25, 2019 1:42 PM

Vodafone Idea may have no cash left for capex in case of full payment to the government following an order by the Supreme Court on Adjusted Gross Revenue (AGR), brokerages said.

For both Vodafone Idea and Bharti Airtel, the apex court’s decision on the definition of AGR means curtailing of capex.

Vodafone Idea may have no cash left for capex in case of full payment to the government following an order by the Supreme Court on Adjusted Gross Revenue (AGR), brokerages said. Even though more clarity is awaited on the amount and terms of payment from the government, newly merged entity Vodafone Idea would be the worst hit, global brokerage Jefferies said. For both Vodafone Idea and Bharti Airtel, the apex court’s decision on the definition of AGR means curtailing of capex, it added. However, Bharti Airtel and Reliance Jio could take this as an opportunity to gain Vodafone Idea’s 29 per cent market share, domestic brokerage Motilal Oswal Institutional Equities said.

On Thursday, the Supreme Court upheld the Department of Telecommunications’ (DoT) definition of AGR, a long-standing dispute between the government and the telcos. The companies will now be required to include the non-core income for calculation of AGR, requiring them to pay the government as much as Rs 92,641 crore extra, including disputed demand, interest and penalty. Reacting to the decision, Bharti Airtel and Vodafone Idea, said the court order could have damaging implications for the sector, even weakening its viability as a whole.

“Bharti could manage to scrape through with Infratel stake sale: Bharti has net debt to EBITDA of 3.4x, with net debt of INR930b as of 1QFY20. It has a 53% stake in Bharti Infratel which can fetch INR250b and be utilized to repay the DOT payment, including interest and penalty,” Motilal Oswal Institutional Equities said. However, Vodafone Idea doesn’t have the cash to fund itself beyond June 2020, it added.

“VIL has net debt of INR900b with gross debt of INR1200b and potential cash of INR300b. “It has cash balance of INR210b (as of June’19) and can raise INR50b from its stake sale in Indus and INR45b from the next four quarters of EBITDA. Against this cash, it has estimated cash outflow of INR280b with (a) estimated capex of INR150b, (b) INR100b of debt repayment (Government Spectrum and Bank) and (c) INR30b of interest cost,” it also said. Vodafone Idea would need capital to fund even the current operations beyond the next 3-4 quarters, other than the additional DOT charge, it added.

“The claim by the DOT has several elements. The base claims are not so large, it’s only the interest and penalties that make it a big figure. In that sense, it will depend on how the government wants to proceed with the entire issue. If penalties are waived or interest is waived it will be manageable if not then it will be very tough for the industry,” investment advisor Sandip Sabharwal told Financial Express Online.

While Vodafone Idea needs to pay Rs 28,000 crore, Bharti Airtel has to cough nearly Rs 22,000 crore of AGR (without SUC).

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