The Supreme Court has denied telcos’ request to modify their AGRs, which is a major setback for Vodafone Idea

The Supreme Court on Friday dismissed Vodafone Idea, Bharti Airtel, and Tata Teleservices’ appeal to allow correction of errors in the telecom department’s adjusted gross revenue (AGR) calculations, dealing a major blow to Vodafone Idea (Vi), whose stock plummeted 10% and left the telco’s viability in jeopardy.

“All applications dismissed,” Justice N Rao and Justice Aniruddha Bose of the Supreme Court declared. According to the Department of Transportation, VI, Airtel, and Tata Tele should have paid an additional 10% of AGR dues by March 2021, with the remainder spread out over the next ten years. Telcos, on the other hand, claim to have already paid more than 10%, and that they will continue to do so.

The Supreme Court’s Friday ruling will have the largest impact on Vi, which is still looking for investors to help it raise Rs 25,000 crore in desperately needed capital. The recent decision raises concerns about the third-largest telco’s long-term viability. Soon after the order, the telco’s stock dropped 10% to Rs 8.33, while Airtel’s stock fell 1.4 percent to Rs 538.90. With a debt of Rs 1.8 lakh crore and a cash balance of Rs 350 crore, Vodafone Idea has tied its viability on the lowering of its AGR dues, among other things. The telco noted on its fiscal fourth quarter earnings call that it expects some relief from the SC, which will lower its AGR.

Soon after the order, the telco’s stock dropped 10% to Rs8.33, while Airtel’s stock fell 1.4 percent to Rs538.90. With a debt of Rs 1.8 lakh crore and a cash balance of Rs 350 crore, Vodafone Idea has tied its viability on the lowering of its AGR dues, among other things. The telco noted on its fiscal fourth quarter earnings call that it expects some relief from the SC, which will lower its AGR.Vi had self-assessed its debts at Rs 21,533 crore, Airtel at Rs 13,003 crore, and TTSL at Rs 2,197 crore, all of which were significantly less than the amount demanded by the Department of Telecommunications (DoT) in their petitions.

The SC had earlier dismissed their self-evaluations and declared the DoT computations to be final. According to the government’s calculations, VI is owed Rs 58,400 crore, Airtel Rs 43,980 crore, and Tata Teleservices Rs 16798 crore. VI has paid Rs 7854 crore, Airtel has paid Rs 18,003 crore, and Tata Tele has paid Rs 4,197 crore. The telcos must pay their balance dues in ten instalments over the next ten years.

Without a recalculation, VI’s AGR EMI will be around 60% of cash Ebitda in 2022, putting the company in financial trouble, according to brokerage CLSA. VI will need average revenue per user of Rs 170, or 40% more than in 4QFY21, to cover the AGR EMI, which will necessitate several pricing hikes or compel shutdown, according to the report.

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