Analysts dump Voda Idea for Airtel post AGR re-calculation case verdict

With sufficient assets and a healthy financial condition, Bharti Airtel can clear their dues with DoT, analysts said

In a major setback for telecom companies, the Supreme Court (SC), on Friday, dismissed all the pleas seeking re-calculation of adjusted gross revenue (AGR) dues, hanging firms out to dry. Analysts see the verdict having the potential to alter the industry dynamics to a duopoly (two-player sector) with Bharti Airtel and Reliance Jio as frontline players if Vodafone Idea is unable to find a new strategic investor, or fails to raise tariff without a significant subscriber churn.

“The market was not factoring in a lower AGR pay-out anyway. That said, the industry is moving towards a two-player model as Vodafone Idea, or even unlisted players like BSNL and MTNL, are facing severe cash crunch due to low pricing model,” says AK Prabhakar, head of research at IDBI Capital.

On their part, the markets gave a thumbs down to the development with Vodafone Idea and Bharti Airtel slumping 15 per cent and 2.5 per cent, respectively in intraday deals.

While analysts remain cautious on the sector, they still are optimistic on Bharti Airtel as the company has begun raising tariff and also has the capacity to go for further hikes. However, given the precarious situation of Vodafone, they advise investors to stay away from the stock.

“As the AGR overhang continues in Vodafone Idea, investors with high-risk appetite may hold the stock or maybe buy on dips. Otherwise, one should not invest. As regards Bharti Airtel, one can hold the stock from a long-term perspective,” says an analyst with a domestic brokerage.

“With sufficient assets and a healthy financial condition, Bharti Airtel can clear their dues with DoT. It had already paid around Rs 18,004 crore of the Rs 43,980 crore demanded from them. Bharti Airtel is consistently gaining market share and has a better service mix with a healthy balance sheet. The AGR dues will not impact Bharti Airtel's revenue growth momentum, capex plans etc.” said Omkar Tanksale, senior research analyst, Axis Securities.

AGR dues

With the SC quashing the applications, Sabyasachi Majumdar, senior vice-president & group head at ICRA believes that the industry is staring at high commitments towards debt repayments and DoT payments in the coming few quarters, with the next major payments due in March-April 2022. "In order to meet these, the industry participants will have to look for avenues of fundraising and/or asset monetisation, in addition, to focus on substantially improving the ARPU levels," he says.

Vodafone Idea, according to Deepak Jasani, head of research at HDFC Securities, should ideally tap new strategic investors, either via foreign direct investment (FDI) route or a complete buyout by an international telecom player, to survive competition. The struggling telco has, so far, refrained from raising tariffs significantly amid fears of a subscriber churn. However, it is believed to have received the government's approval to raise up to Rs 15,000 crore through FDI which would help it pay the AGR dues, reduce debt, and use the money for operational expenses.

Meanwhile, Bharti Airtel, on Thursday veered towards raising ARPUs (average revenue per user) by increasing the entry-level post-paid plans for its corporate customers and tweaking offers for its retail ones. Discontinuing its post-paid plans of Rs 199 and Rs 249 or below for corporate customers, the telecom operator has said its post-paid plans will now start from Rs 299 for new and existing customers.