Telcos Under Pressure: Supreme Court Rejects AGR Recalculation Curative Plea By Voda Idea & Bharti Airtel

The Supreme Court has rejected the plea by major telecom companies, including Bharti Airtel and Vodafone Idea, for a re-computation of Adjusted Gross Revenue (AGR) dues, according to a CNBC-TV18 report on September 19.

The AGR dispute has been a contentious issue for India's telecom sector. The AGR calculations, which determine the revenue on which telecom companies must pay government dues, have been a source of friction between the industry and the Department of Telecommunications (DoT). Telecom companies, including Bharti Airtel and Vodafone Idea, have challenged the calculations, alleging that they were flawed and unfairly punitive.

On July 15, Vodafone Idea sought an urgent listing of its curative petition against the Supreme Court's 2019 judgment, which upheld the government's AGR demands. This petition was filed with the hope of revisiting and potentially reducing the AGR payments.

The Supreme Court's dismissal of the plea is a blow to the telecom companies' efforts to mitigate their financial stress. Vodafone Idea, in particular, has been under a massive AGR liability, which had ballooned to Rs 70,320 crore by the end of FY24. The company's request for a re-computation was aimed at addressing what it viewed as grave errors in the calculation of its dues.

Senior advocate Harish Salve, representing Vodafone Idea, argued that the company is on the brink of a financial crisis and that the court's refusal to correct even clerical errors in the AGR calculations was unjust. Salve highlighted the dire situation faced by Vodafone Idea, stating that the judgment effectively precludes any reduction in the amount payable, which adds penalties and interest on penalties.

The market reaction to the Supreme Court's decision was immediate and severe. Vodafone Idea's stock plummeted by 10%, hitting a lower circuit limit of Rs 11.61 on the National Stock Exchange (NSE). Similarly, Indus Towers, which has close financial ties with Vodafone Idea, saw its stock drop by 10% to Rs 385.5 apiece.

An analyst from IIFL Securities told CNBC-TV18 that if Vodafone Idea's planned debt raise does not materialize, it could lead to delays in the company's capital expenditure (capex) plans. The lack of financial relief from the AGR dispute could further strain Vodafone Idea's cash flow.

While the Supreme Court's ruling represents a setback for Vodafone Idea, it could provide a slight advantage to Bharti Airtel. The dismissal of the AGR recalculation plea is viewed as a potential opportunity for Bharti Airtel to increase its market share. With Vodafone Idea facing financial challenges and constrained operations, Bharti Airtel may be able to capitalize on this situation by attracting customers who are dissatisfied with or unable to access services from Vodafone Idea.

Following the recent development, Vodafone Idea's shares plunged over 15%, trading at Rs 10.40 per share on the National Stock Exchange (NSE) as of 1:15 pm. This price is below the recent FPO (Follow-on Public Offer) price. Over the past year, Vodafone Idea's stock has yielded returns of approximately 20%.

In contrast, Bharti Airtel's shares experienced a gain of over 1%, reaching Rs 1,676.55 per share on the NSE at the same time. Bharti Airtel's stock has generated returns exceeding 80% over the past year.