The SC has directed the telecom companies to make 10 per cent payment of total AGR dues by March 31, 2021, and a 10-year timeline for payment of AGR dues will begin from April 1, 2021. Market watchers say that SC's verdict has put Vodafone Idea in a precarious situation.
Bharti Airtel stock is a high conviction ‘buy’ pick of research and brokerage firm Motilal Oswal Financial Services, given that the Sunil Mittal-company is well-positioned financially to manage payment of pending AGR dues. The Supreme Court verdict on AGR dues payment timeline allowed 10 years for telecom companies such as Vodafone Idea, Bharti Airtel and Tata Teleservices to make payment, instead of the 20-year schedule sought by Department of Telecommunications (DoT) with certain conditions. Market watchers say that SC’s verdict has put Vodafone Idea in a precarious situation.
The SC has directed the telecom companies to make 10 per cent payment of total AGR dues by March 31, 2021, and a 10-year timeline for payment of AGR dues will begin from April 1, 2021. In July this year, Bharti Airtel and Vodafone Idea had scaled down their demand to 15 yrs from 20 years earlier.
Motilal Oswal has pegged a price target of Rs 700 on Bharti Airtel shares, an upside of over 27 per cent from the previous close of Rs 550. According to Motilal Oswal, Bharti Airtel would have to pay Rs 4,500 crore by March 31, 2021, which is a 10 per cent upfront payment and Rs 3,400 crore annually, assuming an 8 per cent discount rate from March 2022 for 10 years. The firm expects Bharti to be able to manage the payment with free cash flow (FCF) post-interest of more than Rs 10,000 crore in FY 21 and Rs 20,000 crore in FY22, with no tariff hike built-in and net debt of Rs 1.09 lakh crore in FY21, including the AGR liability. On the other hand, Vodafone Idea would require to pay Rs 5,800 crore (10 per cent upfront payment) by March’21 and Rs 6,600 crore annually from March’22 for 10 years.
Around 1.35 PM, Bharti Airtel shares were trading nearly 2 per cent lower at Rs 539.75 apiece, as compared to a 0.08 per cent fall in the benchmark S&P BSE Sensex. “VIL with pre-Ind-AS 116 EBITDA of Rs 68 billion in FY21 and net debt of Rs 1.5 trillion (including the AGR liability), is in a precarious situation,” it added. The brokerage firm highlighted that with payments from Vodafone PLC, Bharti Infratel, and existing OCF, it could manage the current fiscal, but would require a sizable price hike and capital infusion.
Vodafone Idea shares hit 15 per cent upper circuit at Rs 11.39 apiece just ahead of its board meeting scheduled for September 4, 2020. The brokerage firm in its report further noted that in FY21 and FY22, Bharti’s EBITDA (pre-Ind-AS 116) of Rs 38,500 crore and Rs 46,700 crore and FCF post interest of Rs 11,200 crore and Rs 21,000 crore should certainly put it in a comfortable position to repay its annual AGR payment of Rs 3,400 crore. “With a positive FCF, its net debt of Rs 1,095 billion in FY21, including the AGR liability, should reduce going forward,” it added. The brokerage firm further said that Bharti has a best-hedged position. “In order to survive, if VIL triggers a price hike or if the market turns duopoly, Bharti would benefit significantly in both cases, with a potential EBITDA increase of more than 100–120b,” it said.
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