As Airtel, Vodafone Bite the Bullet on AGR Payments, Brokerages Raise Red Flag

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After the Supreme Court slammed telecom operators and the Department of Telecommunications (DOT) on Friday for failing to comply with its earlier verdict on collecting AGR (aggregated gross revenue) dues by January 23, Bharti Airtel Ltd and Vodafone Idea Ltd have finally seemed to have bowed to the demand and start the process of paying pending dues.

Bharti Airtel on Monday said it has paid Rs 10,000 crore to the telecom department towards statutory dues and will pay balance amount after self-assessment exercise. Meanwhile, Vodafone Idea said it was currently assessing the amount that it will be able to pay to DoT towards the dues calculated based on AGR and proposes to pay the amount so assessed in the next few days.

As telecom companies bite the bullet on paying AGR dues, here’s what brokerage houses have to say on the outlook for these firms:

CLSA

After the recent developments, brokerage firm CLSA has maintained its ‘sell’ call on the Vodafone Idea stock, while cutting target to Rs 3.50 from Rs 5.50 per share earlier. It has factored in a 50% of AGR dues risk in the stock’s valuation.

CLSA also raised Vodafone’s FY20-22 earnings forecast by 2-4% as Q3 revenue and Ebitda (earnings before interest, tax, depreciation and amortization) were ahead of estimates.

Motilal Oswal


According to Motilal Oswal, the latest Supreme Court order leaves telecom companies with limited options to get relief from legal or government sources. The brokerage house said it could see far-reaching serious ramifications on both telecom and banking sectors due to the AGR issue.

Further, it said that a duopoly telecom market is likely to benefit Bharti Airtel and, hence, raised its target for the stock to Rs 650 apiece.

The incremental Ebitda potential for Bharti Airtel is at Rs 10,000 crore in FY22 and it can garner Ebitda of Rs 55,000 crore in FY22, without factoring any further Arpu (average revenue per user) increase, said Motilal Oswal.

Axis Capital


Vodafone Idea’s debt burden is high, while Bharti Airtel is better placed to make AGR payments as it may continue to gain market share at an accelerated pace, said Axis Capital.

For Vodafone Idea, it’s tough to remain a going concern if there’s no change in order, while there is limited room for any change in decision either by government or any other SC bench, it added.

ICICIdirect


ICICIdirect said that given Vodafone Idea’s weak balance sheet and promoters’ earlier statement of their inability to infuse capital, the company is more likely to file for bankruptcy than meet the demand for the dues. Given this development, it has suspended its rating on Vodafone Idea shares.

It also reiterated that Bharti Airtel remains the preferred pick in the telecom space given its resilient performance amid challenging times with improving market share and relatively stronger balance sheet to weather the challenges.