It’s advantage Reliance Jio after Supreme Court verdict drains Airtel and Vodafone

• The stock price of Reliance Industries is on the rise after the Supreme Court verdict on how to define adjusted gross revenue (AGR) for telecom operators.
• The stock prices of Airtel and Vodafone Idea, on the other hand, dipped sharply.
• The financial impact of the verdict will be greater on the two legacy players in the market, leaving it weakened against the younger Jio and Mukesh Ambani's deep pockets.

Reliance Industries' share price shot up by 1.77% on October 24 after the Supreme Court ruled in favour of the government in defining adjusted gross revenue (AGR) for telecom companies.

But, it dipped back to its opening price of ₹1436.25 by end of the day.

All telecom operators are now bound to pay a levy to the government⁠— including for past revenue⁠— on not just the money earned from core telecom services but also on dividends, handset sales, rent and profit from the sale of scrap in addition to revenue from services.

Airtel will have to pay ₹21,682.13 crore and Vodafone will have to cough up ₹19,823.71 crore to the Indian government, according to the Department of Telecommunications (DoT).

Given the huge financial impact on Vodafone and Airtel, they will be considerably weakened to complete against Mukesh Ambani’s Jio and its deep pockets.

Both Airtel and Vodafone have huge debts and are bleeding cash in trying to retain customers from moving on to Jio.

Reliance Jio also has high debt but its parent company, Reliance Industries, underwent one of the largest capital expenditure exercise by an Indian corporate. Of the $93 billion invested in different verticals, nearly half was invested in Jio.

It’s network is already 5G-ready whereas Airtel and Vodafone still have a ways to go to upgrade their infrastructure.

The budget set aside for making the network better and buying the 5G spectrum will now go into clearing the government dues .

Meanwhile Jio can aggressively move towards acquiring more customers from these two peers.