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SC order on AGR a massive blow for Airtel, Vodafone Idea says Kotak Securities

October 29, 2019
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As per Kotak Securities, the major judgement passed by Supreme Court (SC) to recover Rs 926.41 billion in total adjusted gross revenue (AGR) from Indian telecom operators is a massive blow to Bharti Airtel and Vodafone Idea Limited.

Airtel and Vodafone Idea are liable to pay Rs 217 billion and Rs 283 billion, respectively. Liabilities pertain only to underpaid licence fee and associated penalty and interest. The related demand on underpaid spectrum usage charges (SUC) is also quite likely, which could be 60-70 per cent of the licence fee related demand, the brokerage house stated in a report.

Assuming that no relief comes through, the outstanding liability of 283 billion (and another potential large demand for past SUC underpayment) would make the already-stressed situation even tougher for Vodafone Idea. According to Kotak, Vodafone Idea may need to resort to another round of large equity raise to fund these payouts. However, this may not be easy, given that the amounts are a multiple of the company's current market capitalisation.

Meanwhile, Airtel’s balance sheet is relatively better and while the payouts will increase the leverage ratios, Kotak believes that the situation is far more manageable for Bharti.

Both Airtel and Vodafone Idea have appealed to the government to review the impact of the verdict on the industry and thereby finding solutions to mitigate the financial burden on the sector. However, the report stated that the case for a review application to be accepted is quite weak.

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