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The Indian telecom sector is facing a challenging landscape, with the Supreme Court's dismissal of the telecom companies' plea for re-computation of adjusted gross revenue (AGR) leaving no immediate relief in sight. This decision casts a shadow on the future of Vodafone Idea, one of the major players in the market, as it navigates a complex web of financial obligations. The analyst, Balaji Subramanian, emphasizes the critical role of Vodafone Idea's ongoing debt fundraising, highlighting that its successful completion will be crucial in ensuring that the company can proceed with its planned capital expenditure (capex) program and arrest subscriber losses. The lack of AGR relief has also led to speculation about the possibility of a larger proportion of the telecom companies' dues being converted into equity, a move that would offer some financial respite but would also come with the potential for increased dilution of existing shareholders.
Subramanian elaborates on the potential consequences of the Supreme Court's decision. While the government had previously approved a relief package allowing for the conversion of a portion of dues into equity during a moratorium period, the possibility of expanding this conversion to include a wider range of dues has now become a more viable option. This expansion, while providing some financial breathing room for Vodafone Idea, would also translate into a more significant dilution of existing shareholders' holdings. Further, the analyst acknowledges the possibility of extending the moratorium period on AGR and spectrum payments, which currently ends in September 2025. This extension would offer some cash flow relief to Vodafone Idea, but it would also push the larger payment obligation to a later date.
The analyst highlights that the success of Vodafone Idea's capex program, contingent upon its debt fundraising, will have a positive impact on Indus Towers, a major telecom tower company. This positive impact arises from the anticipated increase in network rollout, which will directly benefit Indus Towers as a provider of infrastructure. As for other telcos, the analyst expects business to continue as usual, with continued gains in revenue market share, albeit at a slower pace compared to recent years. The key factor to watch going forward will be the extent of tariff increases in the coming years. The market is anticipating another round of tariff hikes in the next 12 to 18 months, and the possibility of a third round in the subsequent period remains a significant factor influencing the performance of Bharti Airtel and Hexacom.
The article concludes with an emphasis on the interconnectedness of the telecom industry and the potential impact of the AGR ruling on various stakeholders. Vodafone Idea's ability to secure its debt fundraising will be critical to its continued survival, and the possibility of increased equity conversion provides an additional element of uncertainty for existing shareholders. The impact of the AGR ruling will extend beyond Vodafone Idea, with implications for other telcos, tower companies, and the overall industry landscape. As the telecom sector navigates these complex challenges, the decisions made in the coming months will have a significant impact on its future trajectory.
Source: No AGR relief, a higher proportion of telecom debt may get converted into equity: Balaji Subramanian