AGR stricken Hughes Network denies reports of exiting India

After reports emerged suggesting that Hughes Network Systems is planning to shut down its India business, the company sources have denied making any such move. Hughes has been reportedly asked to pay Rs 600 crore by the department of telecom (DoT) on account of its AGR (adjusted gross revenues) dues. As per reports, US-based firm has recently written a letter to DoT that it has paid nearly all its dues arising out of the AGR dispute, and the demand raised from the company has been wrongly computed.

The company sources, however, say that there are no plans to leave India despite the tall demand from the government. "There are no plans to exit India at the moment," says a source. The reported AGR demand from DoT is more than the revenues and net profits of the company. As per ratings agency ICRA, Hughes clocked revenues of Rs 374.5 crore and net profits of Rs 25.7 crore in 2018/19.

"The order book position of the group is strong at around Rs 520 crore as on September 30, 2019 with healthy order inflow. The order book includes orders of more than Rs 100 crore from oil marketing companies, more than Rs 50 crore from banks, and a new order of Rs 57 crore from Telecommunications Consultants of India Limited," said the ICRA report dated November 18.

Hughes is one of the entities which have been affected by the 16-year-old AGR dispute between the government and the telecom sector. In October, telcos like Vodafone Idea and Bharti Airtel lost the case in the Supreme Court who asked the telecom companies to pay their dues in three months. Since then, the telcos have tried hard to seek relief from the court but in vain. The total dues of 15 telcos are estimated at Rs 1.47 lakh crore.

Hughes' potential exit from the India market is expected to affect a vast number of sector, and Airtel. Last May, HCIL (Hughes Communications India Limited) announced the merger of its VSAT business with Airtel's VSAT business. Post merger, which is yet to be completed, the merged entity would have 60 per cent share in the total VSAT market in the country. HCIL holds the VSAT CUG licence from the DoT, and satellite lease from Antrix Corporation Limited (a commercial arm of ISRO). HCIL has a market share of 37 per cent in the Indian VSAT market. Its products find applications in a wide range of industries such as banking, telecom, oil marketing, education, and retail-facing entities.

"Under this (AGR case), there can be a demand from HCIL as well, on account of inclusion of IP-1 revenues (which do not attract any license fee) in the revenue-sharing AGR. Although the company has been paying AGR that includes non-core revenues as mentioned in the court order, the additional demand might be raised on account of IP-1 revenues," said the ICRA report quoted above.

In an official statement, the company said that Hughes was one of the earliest multinationals to enter the country in the 1990s, and subsequently went on to make significant investments, setting up several companies in the communications and technology sectors. "Hughes Communications has also enabled the satellite broadband revolution in India that has helped play a pivotal role in linking Indian enterprises and government entities to the digital revolution. Hughes remains committed to India and will continue to provide high quality communications and technology services to its customers in India," said Pranav Roach, president, Hughes Network Systems India Ltd.

HCIL is part of the Hughes Network Systems LLC, which is owned by Echostar Corporation, a US-based provider of satellite communications. Echostar owns a fleet of satellites that it uses for communication and has a long track record in the business.

The group has access to technology support from the parent entity, which has a long track record of providing VSAT-based communication services in developed markets with its own satellites, technology development and solutions to corporate as well as retail consumers. Its prominent customers include HDFC Bank, State Bank of India, Punjab National Bank, ONGC, IOCL, HPCL and BPCL.