Balaji Subramanian, AVP and telecom analyst, IIFL Securities, says that with the Supreme Courtroom rejecting the telecom corporations’ plea for re-computation of adjusted gross income (AGR) case, there is no such thing as a aid in sight for telecom majors. If Vodafone Thought is ready to full its debt fundraising, then the capex programme must be on observe and that signifies that Vodafone Thought ought to nonetheless be capable to make sure that over the following few months the subscriber loss is arrested. Debt fundraising will maintain the important thing. The aid package deal that the Cupboard greenlit in 2021 permits the primary a part of the dues in the course of the moratorium to be become fairness. Given how decided and outspoken the federal government has been about sustaining a three-player market, they may resolve to broaden the forms of dues that may be transformed into fairness down the road.

Clarify the implication of the AGR problem for the telecom sector after which we’ll get into the specifics.
Balaji Subramanian: My studying of all the AGR scenario is that the Road was anticipating a beneficial consequence and that will have been optimistic for the businesses, particularly Vodafone Thought. For Indus and Bharti, it could have been a small optimistic if the aid had come via. Now with the aid not coming via, these corporations is not going to see a discount of their AGR burden. After I say these corporations, I check with Vodafone Thought and Bharti and that will imply that at the very least they must pay these liabilities over a time period.

Now so far as Vodafone’s debt increase is worried, the positivity round Vodafone was one via the fundraise that they’re within the technique of finishing. They’d have been capable of make investments Rs 50,000 to 55,000 crore on their community within the subsequent three years and that will outcome of their subscriber loss coming off and their ARPU additionally going up as a result of their 2G subscribers would be capable to improve to 4G and keep again on the community.

The second ingredient was on the tariff hikes. Whereas two or three rounds of tariff hikes have been anticipated, issues have been going as per plan based mostly on the tariff hike of round 15-20% that we noticed in July this 12 months. And the third hope was the AGR aid coming via. Now it seems very distant that there may be any aid with the Supreme Courtroom turning down the healing petition. My sense is that if Vodafone Thought is ready to full its debt fundraising, then the capex programme must be on observe and that signifies that Vodafone Thought ought to nonetheless be capable to make sure that over the following few months the subscriber loss is arrested. So, the debt fundraising will maintain the important thing.

Over the weekend, they’ve introduced a capex tie-up with three world majors. It clearly means the administration is assured of rolling out the capex plan. The administration will roll out a capex plan solely once they suppose they’re ready to service their debt or fund the capex plan. Can I take a look at it positively?
Balaji Subramanian: Sure. That’s certainly a optimistic growth as a result of as you rightly mentioned, tying in funds could be very crucial when it comes to making certain that the capex plan goes via and there have been a number of articles additionally which mentioned that the plan that they’d submitted to the bankers round their debt fundraising, these plans didn’t think about any AGR aid within the base case.

In fact, this isn’t one thing which the corporate has publicly mentioned, so we have no idea. That is all based mostly on media studies. If that have been to be true, then it’s clearly a optimistic as a result of at the very least from a lending perspective, the AGR aid would have come as a cherry on the cake if it had come via. However even when it had not come via, which is what has now turned out to be, that will assist the corporate to nonetheless increase the debt funds and go forward with the capex plan. So, it’s a clear optimistic that they’ve gone forward and signed these offers over the weekend.What are the probabilities that the federal government can convert their whole remaining debt into fairness? The AGR can simply get transformed into fairness.
Balaji Subramanian: Proper now, the aid or the reform package deal, which was permitted by the Cupboard in 2021, lets the principal a part of the dues in the course of the moratorium to be transformed into fairness. However contemplating how agency the federal government has been and vocal the federal government has been when it comes to making certain that we’ve got a three-player market, I’d not be stunned if the federal government in future expands the scope of the dues that may be transformed into fairness.

So, I’d anticipate the next proportion of the debt to be transformed into fairness going ahead now that we shouldn’t have the AGR aid coming via, in order that can be a possible aid risk that the federal government can provide you with. After I say aid, that may make sure that the survival prospects of Vodafone Thought in future don’t get impacted. However after all, the next extent of fairness conversion can even imply that the dilution for the present shareholders will probably be increased, so that’s one risk that the federal government can at all times discover. And the opposite risk is to increase the moratorium interval.

Proper now, the moratorium on the AGR and Spectrum funds will finish on September thirtieth, 2025, and if the federal government is extending that to a later cut-off date, that can even imply that Vodafone Thought will get some money circulate aid. However the operative phrase right here is the money circulate aid as a result of because the legal responsibility is just not going to cut back, that can even imply that the payouts will probably be increased at a later cut-off date.

What’s the outlook now with this mega deal that Vodafone has inked? What does it imply for different gamers when it comes to the pecking order – Jio, Bharti Airtel and Vodafone?
Balaji Subramanian: If the capex programme of Vodafone Thought goes on uninterrupted because the administration was anticipating, the most important aid will probably be for Indus Towers as a result of Indus Towers will probably be a direct beneficiary of Vodafone Thought’s community rollout. So, it’s a clear optimistic for Indus Towers. So far as the opposite telcos are involved, it’ll nonetheless be enterprise as common.

Earlier than the AGR verdict had are available, they have been nonetheless anticipated to proceed gaining income market share however at a decrease extent as to what they have been gaining within the final three-four years, I believe that may nonetheless proceed. Now the important thing factor to be careful for is, what’s the extent of tariff will increase within the subsequent 18-24 months? The Road is constructing in one other spherical of 15-20% tariff improve within the subsequent 12 months or 18 months and if there have been to be one other spherical of tariff improve after that, which is what more and more the market appears to be factoring in going by how the Airtel and Hexacom shares have carried out, then there can nonetheless be some upside. So, the efficiency of Bharti Airtel and Hexacom would rely on whether or not there’s a third spherical of tariff hike within the subsequent 24 months or so.



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