Bharti Airtel to gain at cost of Vodafone Idea, say brokerages

Total adjusted gross revenue (AGR) dues, including interest and penalty, as per the self-assessment exercise done by various telcos are 34.5 per cent of the DoT assessed provisional dues for Bharti, 40.6 per cent for VIL, and 16 per cent for TTSL.

Bharti Airtel may consolidate its position at the expense of Vodafone Idea Ltd as it has a better balance sheet strength to pay past statutory dues in case the Supreme Court rejects their review petitions, brokerages said.

Airtel and Vodafone Idea have filed separate petitions in the Supreme Court seeking review of the October 24 order of the apex court that held them liable to pay statutory dues for the past 14 years after including non-telecom revenue in their annual adjusted gross revenues (AGR). The dues totalling ₹1.47 lakh crore for the industry are to be paid within three months of the order.

“The liabilities are large at $ 4.8 billion for Airtel and $ 5 billion for Vodafone Idea, and if the Supreme Court were to dismiss the review petition, it would be a negative development for Airtel but even more serious for Vodafone Idea which may find it difficult to fund these liabilities before January 24, 2020. This could potentially lead to further market share consolidation in the industry thereby strengthening Airtel’s position,” Morgan Stanley said in a report.

Also read: Vodafone Idea, Bharti Airtel shares zoom up to 30%

The two firms have been lobbying together with the government for relief on payment of the statutory liabilities. Bharti Airtel’s board has already approved raising $3 billion through a combination of equity ($2 billion) and debt ($1 billion).

“In our view, this fundraise is primarily to take care of the worst-case outcome wherein the entire AGR dues become payable,” it said, adding that Airtel’s balance sheet strength was a differentiating factor in the industry.

Goldman Sachs said it hosted Mittal, founder and Chairman of Bharti Enterprises – the holding company of Bharti Airtel, on December 5.

“In the event of any market share re-allocation in the industry, Bharti Airtel believes it is well-positioned to capture 50 per cent or more of the incremental market share; per company, incremental revenues can come at a very high EBITDA margin,” Goldman Sachs said.

Also read: Centre gives ₹42,000 Cr relief to telcos, defers spectrum payments

Morgan Stanley said the recent tariff hike announcements by all three operators is a step in the right direction towards self-repair. It saw a possible ARPU path towards ₹180-200 over the next few years.

“Such large increases will be required for Vodafone Idea along with other government relief measures to bring down its leverage position to more sustainable levels,” it said.

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