On Friday, the Supreme Court rejected the appeal by Vodafone Idea, Bharti Airtel and Tata Teleservices to allow correction of errors in the telecom department’s adjusted gross revenue (AGR) calculations, dealing a big blow to Vodafone Idea (Vi) whose shares tanked 10% and left a could hanging over the telco’s viability.
The Supreme Court bench comprising of Justice N Rao and Justice Aniruddha Bose ruled, "all applications dismissed".
However, there is still no clarity on the different interpretation between the Department of Telecommunications (DoT) and the three telcos on the timing of the 10% upfront payment towards the AGR dues. DoT says Vi, Airtel, Tata Tele should have paid another 10% of AGR dues by March 2021, and the balance spread over the next 10 years. But telcos maintain they have already paid more than 10%, and the next instalment is due only by March 2022.
The written order isn’t out yet.
SC's Friday order will hit Vi the most when it is still hunting for investors to bring in Rs 25,000 crore of much needed funds. The latest verdict will now raise questions of the third largest telco's survival.
The telco’s shares plunged 10% to an intraday low of Rs8.33 soon after the order. At noon, the stock was trading 7.2% lower at Rs8.58. Airtel’s shares, after an initial fall, rose 1.4% to Rs553.95 on hopes of gaining market share at the cost of Vodafone Idea.
"This (the order) will not bode well for the recovery in the sector and is likely to protract the same, given the elevated debt levels and very low tariffs,” said Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ltd.
“The industry is staring at high commitments towards debt repayments and DoT payments in the coming few quarters, with 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 added.
Vodafone Idea — with a debt of Rs 1.8 lakh crore and cash balance of Rs 350 crore — itself needs to pay Rs 22,500 crore from December 2021-April 2022 towards a mix of regular debt, AGR and spectrum dues. It has already request DoT to give a year more — until April 2023 — to pay its Rs 8,292 crore dues related to spectrum purchased in auctions.
The telco had linked its viability to reduction of its AGR dues, along with other factors. At its fiscal fourth quarter earnings call, the telco said it expected some relief from the SC which will reduce its AGR dues to nearly half.
Vi had self-assessed its dues at Rs 21,533 crore, Airtel at Rs 13,003 crore and TTSL at Rs 2,197 crore and all three in their petitions had said that these were far less than what Department of Telecommunications (DoT) had asked of them.
The SC previously had rejected their self-assessments and ruled the DoT calculations as final.
The ruling left Vi facing dues of Rs 58,400 crore, Airtel, Rs 43,980 crore, and Tata Teleservices Rs 16798 crore, as calculated by the government. Of these, Vi has paid Rs 7854 crore, Airtel, Rs18,003 crore and Tata Tele, Rs 4,197 crore. The telcos need to pay their balance dues in 10 instalments through March 31, 2031.
For Vi, no recalculation will mean its AGR EMI will be around 60% of 2022 cash Ebitda, driving it to a financial crisis, said brokerage CLSA. It added that to cover the AGR EMI, Vi will need an average revenue per user of Rs170, or 40% higher than in 4QFY21, mandate multiple tariff hikes or compel shutdown.
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