AGR case: Ray of hope, if SC gives a long rope

11 Oct 2023 , 10:58 AM

The Supreme Court’s (SC) recent decision to consider hearing telcos’ curative petitions on the AGR case, offers a ray of hope for Vi and Bharti. If the AGR liability is brought down to telcos’ selfassessed levels (likely the best-case scenario), the per-share NPV benefit can be Rs65/9 for Bharti/Vi (excluding the impact of Bharti’s potentially slower RMS gains in the wake of a stronger Vi). Once the moratorium on spectrum and AGR payouts is lifted in Oct’25, annual cash outgo for Bharti/Vi could reduce by Rs84bn/Rs108bn. While Vi’s Rs305bn annual regulatory payout post-moratorium is still stiff (considering its Rs84bn current annualised Ebitda run-rate), lower AGR liabilities may improve fundraising prospects to some extent, especially if the telco is able to bring down spectrum liability by surrendering some airwaves. A stronger Vi will also benefit Indus Towers. 

AGR liabilities: 

Potential respite on the cards? The SC has agreed to hear curative petitions filed by Bharti and Vi, citing calculation errors in AGR dues by DoT. This comes more than two years after the SC had dismissed telcos’ review petitions challenging the Sep 2020 judgment. There is a ray of hope (especially for Vi) that AGR dues could be potentially revised downwards. In 2020, self-assessment of AGR dues had yielded Rs310bn/Rs367bn lower dues for Bharti/Vi vs DoT’s numbers. 

Respite could be significant…: 

The SC had refused to entertain any reassessment pleas in 2020, despite the DoT affidavit basing the demand on preliminary assessment. If the SC permits DoT to allow a reconciliation with telcos on the dues and DoT agrees with telcos’ self-assessment, the potential liability reduction could be ~Rs390bn/Rs460bn for Bharti/Vi; which works out to Rs65/Rs9 per share. 

.. and may improve Vi’s chances of fundraising: 

Currently, Vi’s government dues are ~Rs2trn, split 2:1 between spectrum and AGR. If the AGR dues decrease by ~Rs460bn, Vi’s annual regulatory cash outflow — once the moratorium is lifted from Oct 2025 — could moderate from Rs413bn to Rs305bn. While Rs305bn p.a., is still a tall ask, it may improve Vi’s fundraising prospects to some extent.