Vodafone Idea tanks 9% as SC reserves order on AGR dues' payment timeline

Assuming a 15 year payment timeline, ICICI Securities expect annual instalments of around Rs 6,600 crore for Vodafone Idea
Shares of telecom services providers, mainly Bharti Airtel and Vodafone Idea, were underperforming the otherwise strong market on Tuesday after the Supreme Court on Monday reserved its order on timeline of staggered payment of adjusted gross revenue (AGR) related dues by telecom operators.

Individually, the stock of Vodafone Idea slipped 9 per cent to Rs 8.24 in the early morning trade on the BSE. At 09:21 am, Vodafone Idea was trading 5 per cent lower at Rs 8.55, while Bharti Airtel was trading flat at Rs 577, as compared to 1.1 per cent rise in the S&P BSE Sensex.

In response to the apex court's observation that the 20-year period sought by the Department of Telecommunication (DoT) was "unreasonable", Vodafone Idea and Bharti Airtel, requested for a 15-year window to clear dues while Tata Teleservices sought seven to 10 years. The court, meanwhile, directed the DoT to submit insolvency proceedings details of bankrupt telcos Reliance Communications (RCom), Aircel and Videocon Telecom within seven days. The SC will consider this in its next hearing on August 10, 2020.

Assuming a 15 year payment timeline, ICICI Securities expect annual instalments of around Rs 6,600 crore for Vodafone Idea and Rs 3,400 crore for Bharti Airtel. "While for Airtel, it is very much within the ability, we expect a meaningful case for Vodafone Idea's long term survival only when there is substantial capitalisation by promoters/ strategic partners and/or change in regulations such as floor tariff norms, lowering of levies, etc," the brokerage firm said in a note.

“The future for Vodafone Idea looks bleak due to its high leverage and huge cash requirements. We continue to remain bullish on Bharti/RJio due their healthy balance sheets and strong network capabilities. We value Bharti on FY22E EV/EBITDA multiple of 12x on its India business and 6x on Africa business to derive TP of INR690/share. We believe RJio should garner premium valuations due to lower leverage post its capital reorganization and series of stake sales,” Motilal Oswal Financial Services said in telecom sector update.

Those at CLSA said that they would await the final verdict on the AGR case but "assuming if 20 years staggered payment is granted but the court mandates DoT estimates for AGR dues, Vodafone Idea’s annual AGR payment will jump from 5 per cent to 30 per cent of its cash Ebidta over FY21/22".

"Although 20 years of staggered payments are likely and upcoming potential sector floor tariffs, it will likely compel Vodafone Idea’s promoters to consider insolvency plans," it said.

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