Vodafone To Suffer Most From Supreme Court's Verdict On AGR Re-Computation, Say Experts

The latest verdict by the Supreme Court which rejected telecom companies' plea seeking a re-computation of their adjusted gross revenues will be a huge setback for Vodafone Idea and will also hurt Indus Towers, according to experts.

Industry experts said that they are concerned over the survival of Vodafone Idea and that this might lead to a duopoly in the industry.

Adjusted gross revenue dues are spectrum usage fees to be paid by the telecom companies to the government who calculates it as a percentage of the total revenue.

The telecom companies believe that to compute this only telecom revenue should be considered and non telecom revenue should be excluded.

Ajai Puri, former COO of Airtel India, told NDTV Profit that the industry was expecting relief because of apparent error in calculation. He said that while he respects the apex court's decision, it is a bit of an unfortunate situation and the government must make all efforts to ensure a three-player industry.

The government should not let Vodafone-Idea bundle up under pressure from the verdict, he said, adding that he expects government to come forward for more telecom reforms. It can review tech structure and also look at penalty and interest part of the AGR order to provide some relief, said Puri.

"We know that this is an over exaggerated sum," he said. Currently, Vodafone Idea owes Rs 70,300 crore, the most, to the government, Airtel owes Rs 44,000 crore, and Reliance Jio has no significant dues. Vodafone Idea currently has Rs 535 crore cash on its balance sheet.

In the aftermath of the AGR judgement, the government initially owned a 33% stake in Vodafone Idea, which now stands reduced at 23%. The shares were allocated to the government in lieu of the conversion of interest dues arising from the deferment of adjusted gross revenue and spectrum auction payments.

Balaji Subramanian, senior analyst at IIFL Securities, noted that the news is negative for Indus Tower as well given the delay in payments by Vodafone Idea. "Around 4500-5000 crore is owed to Indus by Vodafone," he said, adding that those payments should keep coming in the near term.

"In a year’s time the impact of this order will play out as the moratorium ends," he said, adding that it is still premature to assess direct financial impact.

On Vodafone, Subramanian said it would have had a tough path even if the curative petition came through. However, he noted that there's room for hope if banks are willing to lend Rs 25,000 crore.

Puri said that Vodafone is on a course to try and recover and the government has to decide on whether it wants a healthy telecom industry.

According to Shahina Mukadam, managing partner at Valuewise Investor Relations LLP, Vodafone's stop loss has been triggered and she thinks investors should get out of Vodafone as it is very difficult to come out of issues and it is not getting any support from the government.

Following the news, shares of Vodafone Idea Ltd. hit the 15% lower circuit and fell to Rs 10.96 apiece, the lowest level since Oct 30, 2023 and Indus Towers also hit the 10% lower circuit.

Experts believe that the news will act as a positive for Bharti Airtel and Reliance Jio. According to Mukadam, the news does not change the view on the overall sector which is positive on the long term as backbone of all communication is telecom.

Among the three, Reliance is best placed, she said, adding that Bharti Airtel stock price has performed in the last year. The news has only dampened the sentiment and Bharti Airtel's financials are good, she said, recommending it to be purchased at lower levels.

Subramanian explained that a slower capex deployment by Vodafone will help Jio in widening market share gains while Bharti Airtel will see mixed impact depending on the company's roll-out program. While he remains positive on Bharti Airtel, he said that the stance on Vodafone will be analysed now.