AGR dues verdict: Airtel stock rallies, Voda Idea tumbles

Mumbai: Investors in Vodafone Idea may have to brace for more pain after the Supreme Court’s verdict on payment of Adjusted Gross Revenues (AGR) dues on Tuesday. Analysts said Bharti Airtel and Reliance Jio are better placed to handle the dues.

The Supreme Court’s final verdict on the AGR issue required telecom companies to pay 10 per cent of dues upfront with the remaining 90 per cent to be paid over 10 years starting FY23.

“This will accelerate sector consolidation. A period of 15-20 years would have been an ideal outcome for Vodafone Idea. They will need a combination of equity funding and tariff hike to sail through these regulatory woes,” said Rajiv Sharma, Head of Research at SBICAP Securities.

Shares of Vodafone Idea sank nearly 13 per cent to close at Rs 8.89 on Tuesday, while Bharti Airtel’s shares gained 6.4 per cent and Reliance Industries ended up 0.4 per cent at Rs 2,087.55.

Jefferies said assuming the ruling takes effect, Vodafone Idea will have to pay Rs 5,000 crore upfront possibly by FY22, post which it will have to pay Rs 6,800 crore annually from FY22. The brokerage said the verdict will fuel further consolidation within the sector.

Sharma said Bharti is well placed in comparison to Vodafone Idea as the company would be in a better position to repay the dues over a 10-year period.

“They are ahead of their investments in 4G, balance sheet is in better shape. Only in a scenario where they invest in 5G they will face constraints. Competition gets lesser for Jio with this verdict as other players will get lesser time to repay dues and Jio can use this opportunity to gain market share from them,” said Sharma.

Jefferies has maintained buy rating on Bharti Airtel with a target price of Rs 670 per share and retained underperform rating on Bharti Infratel with a target price of Rs 160.

“Given that there is limited clarity on whether Bharti and Jio are liable to pay additional dues of Aircel/Videocon and RCom, our analysis assumes this may not have to be paid. Bharti Airtel will have to pay Rs 2,600 crore upfront and an annual payment of Rs 3,500 crore,” said Jefferies.