ANALYSTS DUMP VODA IDEA FOR AIRTEL

The Supreme Court verdict on Friday dismissing all the pleas by telecom companies seeking re-calculation of adjusted gross revenue (AGR) dues could alter the industry dynamics to a duopoly (two-player sector) with Bharti Airtel and Reliance Jio as frontline players, analysts said.

And it will be a loss for Vodafone Idea if it fails to find a new strategic investor or raise tariff without a significant subscriber churn, they said.

“The market was not factoring in a lower AGR pay-out anyway. That said, the industry is moving towards a two-player model as Vodafone Idea, or even unlisted players like BSNL and MTNL, are facing severe cash crunch due to the low pricing model,” says AK Prabhakar, head of research at IDBI Capital.

On their part, the markets gave a thumbs down to the development with Vodafone Idea and Bharti Airtel slumping 15 per cent and 2.5 per cent, respectively, in intraday deals. Vodafone Idea stock closed the day at ~8.36 apiece with a loss of 9.6 per cent, while Bharti Airtel was up marginally by 0.4 per cent to ~548.55 per share on the BSE on Friday.

While analysts remain cautious on the sector, they still are optimistic on Bharti Airtel as the company has begun raising tariffs and has the capacity to go for further hikes. However, given the precarious situation of Vodafone, they advise investors to stay away from the stock.

“As the AGR overhang continues in Vodafone Idea, investors with high-risk appetite may hold the stock or maybe buy on dips. Otherwise, one should not invest. As regards Bharti Airtel, one can hold the stock from a long-term perspective,” says an analyst with a domestic brokerage. “With sufficient assets and a healthy financial condition, Bharti Airtel can clear their dues with the Department of Telecommunications (DOT). It had already paid around ~18,004 crore of the ~43,980 crore demanded from them. Bharti Airtel is consistently gaining market share and has a better service mix with a healthy balance sheet. The AGR dues will not impact Bharti Airtel’s revenue growth momentum, capex plans, etc.” said Omkar Tanksale, senior research analyst, Axis Securities.

With the SC quashing the applications, Sabyasachi Majumdar, senior vice-president & group head at ICRA, believes the industry is staring at high commitments towards debt repayments and DOT payments in few quarters, with the next major payments due in March-april 2022. “To meet these, the industry participants will have to look for avenues of fundraising and/or asset monetisation, in addition, to focus on substantially improving the ARPU levels.”

Vodafone Idea, according to Deepak Jasani, head of research at HDFC Securities, should ideally tap new strategic investors, either via foreign direct investment (FDI) route or a complete buyout by an international telecom player, to survive competition. The struggling telco has, so far, refrained from raising tariffs significantly amid fears of a subscriber churn. However, it has received the government's approval to raise up to ~15,000 crore through FDI, which would help it pay the AGR dues, reduce debt, and use the money for operational expenses.

Bharti Airtel has veered towards raising ARPUS (average revenue per user) by hiking the entry-level post-paid plans for its corporate customers and tweaking offers for its retail ones.