Vodafone Idea, Airtel Report Biggest Losses in Q2 FY20

Who Will Save Vodafone Idea & Airtel?

Introduction

Vodafone Idea and Airtel have reported biggest losses of Rs.50,921 Cr and Rs.23,045 Cr respectively on account of Adjusted Gross Revenue (AGR) provisions to make to the Department of telecommunications (DoT).

Vodafone Idea – Airtel Report Biggest Losses in Q2 FY20

Adjusted Gross Revenue (AGR) Rule

• Telecom providers in India pay the Department of Telecommunications (DoT) nearly 3-5% of their adjusted gross revenue (AGR) in usage charges for spectrum or airwaves and 8% of AGR as licence fees.
• The DoT and the mobile carriers had been at odds over the definition of AGR. The companies argue that AGR should comprise just revenue accrued from core services, while the DoT says AGR should include all revenue.
• The Supreme Court backed the government’s stance that non-core items should be included while calculating AGR. Licensee fee and SUC are calculated on the basis of AGR
• Last month, on October 24, 2019, the Supreme Court upheld the DoT’s view on AGR, that wireless carriers pay Rs.92,000 Cr in overdue levies and interest.
• Vodafone Idea and rival Bharti Airtel, two of India’s three main mobile carriers, will have to pay a bulk of this state demand.
• The Telecom industry as a whole faces dues worth over Rs 1.33 Lakh Cr in licensee fee, spectrum usage charge (SUC), penalties and interest.

Vodafone Idea Ltd (VIL)

• The company reported a net loss of Rs.50,921 Cr, the biggest ever loss in corporate India’s history, due to outstanding payment on account of Adjusted Gross Revenue (AGR) provisions.
• Vodafone Idea accounted for the estimated liability of Rs. 27,610 Cr related to licence fee and Rs.16,540 Cr related to spectrum usage charges up to September 30, 2019.
• The company has made a provisioning of Rs.30,774 Cr.
• Last year September 2018, VIL made net loss of Rs.4,974 Cr.
• VIL’s gross debt as of September 30, 2019, stood at Rs.1.17 Lakh Cr, including a deferred spectrum payment obligations due to the government of Rs. 89,170 crore, but excluding lease liabilities

Airtel

• Bharti Airtel posted a loss of Rs.23,045 Cr for the quarter due to a Rs.28,450 Cr provision towards AGR dues.
• Last year September 2018, Bharti Airtel made net profit of Rs.1,19 Cr.
• Relatively, Bharti is better placed, which runs operations in South Asia and Africa, its Indian revenue rose 3% year-on-year to Rs. 15,361 Cr.
• But its operating cash flow will be close to Rs 20,000 Cr. If they now have to pay the AGR dues of around Rs.30,000 Cr, then everything will be gone.
• They will not have any cash left to survive in the business. No bank will finance this kind of obligations.

Conclusion

• Both telecom players are cash-starved and find themselves unable to pay dues in full. The doors are closed for them, as Vodafone’s parents have refused to infuse money. Moreover, borrowing such a large amount will not be easy for either of them.
• The Management of both the firms have expressed a material uncertainty, whereby it may be unable to realise its assets and discharge its liabilities in the normal course of business.
• Accordingly it may cast significant doubt on the group’s ability to continue as a going concern.