Why Bharti Airtel and other telecom stocks are rallying in a weak market

NEW DELHI: Shares of telecom operators climbed on Wednesday in what was otherwise a weak day for Dalal Street.

The rally in telecom stocks was seen after an ET report suggested that the government was considering a slew of long-term measures to improve the health of the debt-laden telecom sector, which includes prospectively redefining adjusted gross revenue (AGR) to exclude ‘non-telecom’ items and allowing telcos to surrender unused spectrum for a small penalty.

As per the ET report, the government was also considering other measures with the Department of Telecommunications (DoT) including a reduction in licence fees (LF) and spectrum usage charges (SUC) and phasing out of bank guarantees.

Following the development, shares of Bharti Airtel rose 5.01 per cent to close Rs 567.50. The stock also gained after the telecom operator discontinued its Rs 49 prepaid plan.

Shares of Vodafone Idea climbed 4 per cent intraday to Rs 8.75, but it eventually closed the day down gains to 0.7 per cent. "The government must back state control of Vodafone Idea (Vi) by quickly merging it with Bharat Sanchar Nigam (BSNL) and recapitalise the ailing telco to save it from going bankrupt, especially after the Supreme Court ruled out any relief on its huge adjusted gross revenue (AGR) dues," brokerage Deutsche Bank said in a note.

Shares of industry participant IndusInd Tower advanced 4.13 per cent to Rs 232.20. Tata Communications climbed 5.44 per cent to Rs 1,418.

Supreme Court (SC) recently dismissed telcos’ plea for a re-computation of AGR dues to rectify ‘calculation errors’. The AGR dues for Bharti Airtel stood at Rs 44,000 crore, out of which about Rs 18,000 crore has been paid. Vodafone Idea (VI) has AGR demands amounting Rs 58,254 crore, of which Rs 7,854 crore has been paid.

Analysts had noted that relief on AGR dues would have abated Vodafone's debt woes and facilitated a much-needed fund-raising. They suggested that in the absence of Vodafone's capital-raising and tariff hike, the telecom sector in India was moving towards a duopoly.

“The government is looking at ways to improve the financial health of the sector, not just of one company (Vodafone Idea),” the ET report said quoting an official. “If the sector is nursed back to health, Vodafone Idea too will benefit.” The officials though cautioned that the measures would require extensive consultation with the finance ministry owing to the revenue implications of some of them, including reducing the annual LF and SUC.