Bharti Airtel, the second largest telecom operator in India is expected to manage its AGR payment dues with no tariff hikes, Motilal Oswal, an Indian diversified financial services firm said in a research report. The firm’s report released on Tuesday reflects the Supreme Court verdict on the adjusted gross revenue (AGR) case. The apex court on Tuesday allowed a 10-year repayment period for the AGR liability with the operators required to pay 10% total dues as upfront payment by March 31, 2021. Motilal Oswal in its report said that the “silver lining” for the telecom operators is that the Supreme Court did not pass “adverse verdict for the insolvent” operators. The apex court left it to the National Company Law Tribunal (NCLT) to make a decision on the insolvent operators who sold a part of the spectrum to Reliance Jio and Airtel.
Vodafone Requires “Sizeable Price and Capital Infusion” to Secure its Long-Term Future
Motilal Oswal said that Airtel would have to pay Rs 4500 crores by March 31, 2021 and Rs 3400 crores annually for the next 10 years. Further, it was said that Vodafone Idea would have to shell out Rs 5800 crores by March 31, 2021 and Rs 6600 crore annually for the next 10 years.
The firm in its report said that Vodafone Idea is in a “precarious situation” following the AGR verdict with its net debt touching Rs 150,000 crore. Motilal Oswal said that Vodafone Idea “could manage the current fiscal” with payments from multiple parties including Vodafone Group and Bharti Infratel. It has to be noted that Bharti Infratel on Tuesday said that it is moving ahead with the completion of the merger between Indus and Infratel. The development would result in Vodafone Idea selling its 11.15% stake in Indus Towers for approximately Rs 4000 crores.
However, Motilal Oswal said that Vodafone Idea requires “sizeable price hike and capital infusion” to secure its long-term future.
ICICI Direct Research in its report also said that Vodafone Idea will “find it difficult to meet the demand of annuity payment.” The company said that Vodafone Idea has “already been plagued by cash burns” and that the operator requires “immediate capital infusion” apart from tariff hikes to bridge the cash gap.
Vodafone Idea Requires “Massive” ARPU Increase
While telecom operators could still file review petitions on the payment timelines as highlighted by Abhishek Manu Singhvi, Counsel for Airtel, analysts say “noise for tariff hike” will grow.
CARE Ratings, a company that offers credit rating services, in its report on Tuesday said that the telecom industry will need higher average revenue per user (ARPU) from the existing levels. The firm said that industry ARPU is “estimated” at Rs 82 in the June 2020 quarter and that the operators needs higher ARPU to pay the AGR dues in the 10-year timeline.
“This ARPU is much lower than the average ARPU of Rs 124 during FY16 when Reliance Jio had not entered the telecom market,” CARE Ratings, said in a research report.
Airtel in its first quarter earnings call for the period ended June 30, 2020 said that its APRU increased to Rs 157 from Rs 154 in the previous quarter. However, Gopal Vittal, managing director and CEO of Bharti Airtel said that the company needs its ARPU to eventually hit the Rs 300 mark.
“We continue to believe that ARPUs need to move up to 200 and eventually to 300 for a sustainable business model,” Vittal said.
Motilal Oswal said that the balance sheets of both Vodafone Idea and Airtel would weaken with the verdict delivered by the Supreme Court. The firm said that Vodafone Idea would require “massive” Rs 110 cumulative ARPU increase in the upcoming financial years to “manage its operations sustainably.”
“We believe that with the Smartphone market largely settled and prevailing low ARPUs, there is a strong case for a price hike,” Motilal Oswal said in its research report. “However, given the challenging economic environment, we see limited possibility on an immediate basis.”
Additionally, Motilal Oswal said that Airtel would “significantly” benefit if Vodafone Idea triggers a price hike or if the market turns duopoly.
