Here’s what will happen if Airtel and Vodafone Idea get a 10-year timeline to repay AGR dues

Here’s what will happen if Airtel and Vodafone Idea get a 10-year timeline to repay AGR dues
Airtel / Vodafone Idea / Business Insider India
  • During the adjusted gross revenue (AGR) dues hearing, the Supreme Court had some tough words for Vodafone Idea, Airtel and the government’s counsels.
  • Telecom companies have sought more time but the apex court made it clear that the 20-year window for AGR dues repayment is too long.
  • If a 10-year repayment timeline is fixed, Vodafone Idea will have to pay ₹5,034 crore per year at a time when it has posted the highest ever loss by an Indian company at ₹73,878 crore for FY20.
  • In this case, Vodafone Idea will need to hike tariffs and increase its average revenue per user by 73% to sustain its operations.
  • Check out the latest news and updates on Business Insider.
The Supreme Court concluded hearing in the adjusted gross revenue (AGR) dues case, talking tough and making it clear that the 20-year window for AGR dues repayment is too long.

Both Airtel and Vodafone Idea have sought a 15-year repayment timeline, but here’s what will happen if the Supreme Court grants only a 10-year timeline for AGR dues repayment.

According to brokerage firm Motilal Oswal, a smaller repayment timeline will be a big setback for Vodafone Idea which is battling for its survival.

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“This is a big setback, especially for Vodafone Idea (VIL), which is under dire liquidity stress. A lower payment tenure may put pressure on VIL’s cash flows,” the firm said in its latest report.

How will this impact Airtel and Vodafone Idea?

While the Supreme Court concluded the hearing, it reserved its order on the timeline to be fixed for repayment.
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From the hearing, it is evident that the 20-year option will not be acceptable to the top court.

Here’s what the annual outflow for Airtel and Vodafone Idea will be like for 10, 15 and 20-year repayment timelines:

Company10-year (in crore)15-year (in crore)20-year (in crore)
Vodafone Idea₹5,034₹3,356₹2,517
Airtel₹2,598₹1,732₹1,299
*These are annual cash outflows
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Motilal Oswal suggests Vodafone Idea will need a major tariff hike of 73% to service its obligations. This will translate to an increase of ₹85 in average revenue per user (ARPU), from the existing ₹121.

“We maintain our stance on VIL – the company has a bleak future with high cash requirement,” it further added.

On the other hand, the brokerage firm is bullish on Airtel, maintaining its target price of ₹690. This is an upside of almost 22%, based on the closing price as on July 21.
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