Vodafone Idea, Airtel not out of the woods yet

Vodafone Idea may require further relief from the government, say analysts.
Representational Image. (File Photo)
Representational Image. (File Photo)

NEW DELHI: The Union Cabinet’s decision to offer a moratorium on spectrum auction instalments for FY21 and FY22 has extended a lifeline to stricken private sector telcos, albeit a very thin one. Analysts say that while the move will result in some cash flow relief, the companies aren’t out of the woods yet. Vodafone Idea (VIL), in particular, is seen requiring further support.

“The measures were slightly lower than expected,” analysts at Jefferies observed, “we expect further relief measures… since even with the price hike in December, Vodafone Idea will need support, especially around aggregate gross revenue (AGR) dues payment”. For Airtel, this would help “better meet any potential AGR related liability”, Goldman Sachs noted.

The absence of more relief from the Centre, especially in terms of adjusted gross revenue (AGR) dues, saw stock prices of both telcos break their week-long winning streak on Thursday. Bharti Airtel stock fell 2.52 per cent during the day, while VIL saw its scrip value decline 6.08 per cent. Telecom service providers have been directed by

the SC to shell out dues worth around Rs 1.4 lakh crore by January 22, with Airtel and VIL accounting for the lion’s share of the liabilities.

Despite the pessimistic market reaction, the Cabinet’s offer is no small measure. Spectrum auction obligations alone account for outflows worth Rs 12,000 crore per annum for VIL, Rs 5,800 crore for Airtel and Rs 3,200 crore for Reliance Jio, estimates Morgan Stanley. Goldman Sachs analysts add that the move would save VIL and Airtel an amount equal to 41 per cent and 52 per cent of their respective AGR liabilities.

However, this Rs 42,000 crore relief pales in light of the Rs 1.16 lakh crore spectrum usage charges and license fee dues the two have to pay by January. Provisioning requirements for these payments had pushed both into record losses during the second quarter, but liabilities recognised on the balance sheet are substantially lower than the Department of Telecom’s (DoT) calculations. As are the provisions made.

Airtel’s and VIL’s second-quarter provisions toward AGR dues fall short of the DoT’s estimate by around Rs 27,900 crore and Rs 28,520 crore respectively. In comparison, their cash balances at the end of September stand at around $2.9 billion (Rs 20,800 crore) and $2.2 billion (Rs 15,700 crore), according to Morgan Stanley.

The moratorium also does not include payments due for the current fiscal year. “(This) implies that telcos would still have to pay remaining spectrum dues for F20 which could be a drag on cash balances,” noted the brokerage.

While analysts note that a moratorium for AGR dues and reductions in license fees and spectrum usage charges would provide substantial relief going forward, government officials have indicated that the DoT is unlikely to tinker with the SC’s AGR mandate. “We believe the telcos are likely to approach the SC for relief,” Credit Suisse observed.

However, the recent announcements on planned tariff hikes indicate better times ahead for the sector. “We expect sector pricing to improve by 25-30 per cent over the next few days after declining for the past three years,” the brokerage added

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