Supreme Court gives telcos 10 years to pay AGR dues; Bharti Airtel jumps 6%, Vodafone Idea tanks 20%

Vodafone-Idea has been losing market share to its other two rivals that are better placed that it.

Bharti Airtel shares jumped 6% to become the top Sensex gainer on Tuesday, post Supreme Court’s Adjusted Gross Revenue (AGR) dues judgement. On the other hand, Vodafone-Idea, the other major telecom operator that was eagerly awaiting the verdict, entered free fall as the stock tanked 20% to hit the lower circuit during the day but managed to recover some losses to end almost 13% lower. The Apex Court gave telecom companies 10 years to complete their pending dues. Additionally the Supreme Court has asked telcos to pay 10% of their dues by March next year. Vodafone-Idea, the struggling telecom operator ended the trading session at a price of Rs 8.89 per share while Bharti Airtel was up at Rs 546 apiece.

The Supreme Court said that failure to pay AGR dues every successive year for the next decade will invite contempt proceedings against the defaulting party. Additionally, the court left it for the NCLAT to decide if spectrum of a telecom operator can be a part of the insolvency proceedings. “Since the SC has not said anything about the dues of R Com, Aircel and Videocon, this is certainly very positive for Reliance Jio and Bharti Airtel.  However, the 10-year time frame puts a question mark on the survival of Vodafone,” said V K Vijaya Kumar, Chief Investment Strategist at Geojit Financial Services.

Vodafone-Idea has been losing market share to its other two rivals that are fundamentally better placed. Market participants believe that under the current situation, the Indian telecom space could be moving towards a duopoly with Bharti Airtel and Reliance Jio as the surviving two members. The weaker position of Vodafone Idea also puts lenders with exposure to the telco under stress. “We could see some pressure in the near term in select Banks with exposure to Vodafone Idea as staggered payment allowed for 10 years instead of company /Government demanded 15/20 years,” said Jaikishan Parmar, Sr. Equity Research Analyst, Angel Broking.

Bharti Airtel, continues to be favoured by market participants with its strong performance and gaining market share. “Assuming 8% interest rate, Bharti Airtel and Vodafone Idea will now have to pay annually Rs 39 billion and Rs 75 billion respectively. With zero percent interest rate, this reduces to Rs 26 billion/Rs 50 billion respectively,” said Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal. He expects Bharti Airtel to be able to manage the payment with a FCF of over Rs 100 billion in the previous fiscal, while Vodafone Idea with EBITDA of Rs 60 billion may find it difficult to manage.

In the event of India’s telecom space turning a duopoly, Bharti Airtel could be the biggest beneficiary. Global brokerage and research firm Julius Baer, while initiating the coverage of Bharti Airtel said, “Bharti enjoys an early-mover advantage in most of its verticals. This, coupled with solid brand value and distribution capabilities, has helped it successfully retain most of its customers amid intense competition from Jio,” Julius Baer has a target price of Rs 650 on Bharti Airtel shares.