Bharti expected to manage payment, Voda Idea may find it tough, say analysts on AGR verdict

NEW DELHI: Vodafone Idea Ltd may struggle to pay its dues in the 10 years that the Supreme Court granted to telecom companies to clear past statutory dues, analysts said on Tuesday. While Vodafone struggles to clear its dues, Bharti Airtel may be able to meet the payment schedule, brokerage Motilal Oswal Financial Services said.
The Supreme Court in its verdict on Tuesday rejected the demand for a 20-year time for telecom companies to clear an estimated Rs 1.6 lakh crore in past dues but allowed the liability to be cleared in 10 years.

Vodafone Idea Ltd and Bharti Airtel were the only firms in the private sector that survived a brutal price war sparked by the entry of billionaire Mukesh Ambani's Jio in 2016.

Motilal Oswal Financial Services said that assuming an eight per cent interest rate, Bharti and Vodafone Idea (VIL) may have to pay annually Rs 3,900 crore and Rs 7,500 crore, respectively.

"With zero per cent interest rate, this reduces to Rs 26 billion/Rs 50 billion (Rs 2,600 crore/Rs 5,000 crore), respectively," it said.

Hemang Jani, head (equity strategist, broking and distribution) at Motilal Oswal Financial Services, said interest rate for the repayment is not yet confirmed.

"Expect Bharti to be able to manage the payment with a FCF (free cash flow) of more than Rs 10,000 crore in 2019-20 with no tariff hike built, while VIL with Ebitda of Rs 6,000 crore and annual payment of more than Rs 25,000 crore should find it difficult to manage," Jani said. Ebitda stands for earnings before interest, tax, depreciation and amortisation.

The apex court has asked telcos to pay 10 per cent of the adjusted gross revenue (AGR)-related dues by March 31, 2021.

The top court said issue of sale of spectrum by telecom companies facing insolvency proceedings shall be decided by the National Company Law Tribunal (NCLT).

"Positive for Bharti, RIL, as liability of Aircel and Videocon will not fall on Bharti, and RCom will not fall on RJio who have acquired their spectrum," Jani said.

KS Legal and Associates Managing Partner Sonam Chandwani said the fate of telcos whose licences expire prior to the repayment period is "a major concern".

"At the outset, such telcos possess two options - one, to renew the licences due for expiry within the payment timeline of 10 years. Second, there is a likelihood that some companies may fail to renew their licence," Chandwani said.

Chandwani added that if that scenario materialises, such companies may be required to clear their dues well before the conclusion of the 10-year payment timeline.

This "looks arduous" considering the amount of debt, Chandwani added.