'Airtel winner if Vodafone Idea fails on AGR liabilities'

In the event of the entire annual gross revenues (AGR) liabilities falling on telecom operators, it would be serious for Vodafone Idea and could lead to further consolidation, thereby strengthening Airtel's position, according to analysts.

Morgan Stanley, which had upgraded Airtel earlier this week, on Friday issued a research note to back the rationale. Raising the question as to what happens if the entire AGR liability devolves on the incumbent operators, it said that the liabilities are large at $4.8 billion for Airtel and $5 billion for Vodafone Idea.

The report said: "If the Supreme Court were to dismiss the review petition causing the entire liabilities to devolve, it would be a negative development for Airtel but even more serious for Vodafone Idea which may find it difficult to fund these liabilities before January 24, 2020."

The report indicates that Vodafone Idea's inability to fund these liabilities may lead to consolidation. "This could potentially lead to further market share consolidation in the industry, thereby strengthening Airtel's positioning in the industry," Morgan Stanley said.

There are already questions about Vodafone Idea's sustainability as both partners have said that in the absence of relief, they would not be putting in more funds.

Bharti Airtel's Board has also approved raising $3 billion through a combination of equity of $2 billion and debt of $1 billion.

"In our view, this fund raise is primarily to take care of the worst case outcome wherein the entire AGR dues become payable. However, if part of the AGR liabilities were to be waived and/or were paid over a period of time, then the company could use the proceeds for repayment of existing debt. In either case, we see Airtel's balance sheet strength as a differentiating factor in the industry," Morgan Stanley said.

According to a Goldman Sachs report, Bharti Airtel expects industry revenues to start growing again due to recent tariff hikes, and expects industry revenues to surpass $50 billion versus less than $30 billion at present, per company.

Goldman Sachs also said that in the event of any market share re-allocation in the industry, Bharti Airtel believes it is well positioned to capture 50 per cent or more of the incremental market share per company. The company sees low possibility of a new player entering the India telecom market.

Before Jio entered the industry in 2016, Bharti's ARPU was around Rs 200 per month, and the company believes it can get to similar levels of ARPU over the next few quarters, with levels of close to Rs 300 per month over time, the report said.

"Bharti Airtel is hoping for some concessions from the Government of India or the courts on the potential AGR liability payable ($ 5 billion provisioned by the company), including waivers on the amount or moratorium/deferment of payment," the report added.

( With inputs from IANS )