Annual savings, reduced debt for Airtel, Voda-Idea if SC allows AGR self-assessment

Some reports suggest that Bharti Airtel and Vodafone Idea have filed fresh petitions in the Supreme Court on the Adjusted Gross Revenues (AGR) matter. Under their petitions, the telcos have reportedly asked the apex court to modify its previous order on the AGR dues. The telcos have argued that the actual AGR amount they have to pay is significantly lower than the amount demanded by the Department of Telecommunications (DoT), on account of arithmetical errors in DoT's assessment.

Last September, the Supreme Court had asked Vodafone Idea and Airtel to clear their AGR dues in 10 annual instalments starting FY22, with 10 per cent upfront payment which is due to this March. Airtel has already paid dues of about Rs 18,000 crore in 2020 (out of total dues of Rs 43,980 crore) while Vodafone Idea has paid Rs 7,850 crore (out of total dues of Rs 58,254 crore).

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It may be noted that the last bench, headed by now-retired judge Arun Mishra, that was hearing this case had categorically directed the telcos to not interfere with DoT's AGR assessment. But since telcos have again come back with a petition, it would be interesting to see what stand the Supreme Court takes on the re-assessment issue.

Airtel had previously self-assessed its dues at just Rs 13,000 crore which was 70 per cent lower than DoT estimates, whereas Vodafone Idea self-assessed its dues at Rs 21,500 crore which was 63 per cent lower than DoT's assessed amount.

As per Goldman Sachs, Airtel could potentially save Rs 4,100 crore annually and Vodafone Idea Rs 5,800 crore annually if AGR liability is lowered to self-assessed levels. At the same time, the brokerage expects Airtel's and Vodafone Idea's net debt to drop by 30 per cent and 20 per cent, respectively, if AGR is reduced. Nevertheless, analysts at Goldman Sachs don't expect major respite for Vodafone Idea even if AGR amount is revised downwards.

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"We believe AGR dues at the lower self-assessed levels would have little to no impact on the industry's competitive landscape. We expect Vodafone Idea's FCF [free cash flow] to remain negative for the foreseeable future, irrespective of the level of company's AGR dues," says a Goldman Sachs report.

It seems that there's no end to the AGR case that started way back in 2003 when association of telecom operators filed the first plea with the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) challenging the definition of AGR. The dispute arose from the difference of opinion between DoT and telcos on the definition of AGR. For instance, DoT has been arguing that it should include non-telecom revenues of telcos such as interest income, dividend, profits on the sale of assets, insurance claim and forex gains. Telcos, for obvious reasons, said that these items should be excluded.

In October 2019, the apex court ruled in favour of DoT that made telcos pay Rs 1.69 lakh crore to the government. Subsequently, telcos filed review petitions which were rejected by the Supreme Court, but it gave telcos relief by asking them to pay in instalments instead of lump-sum payment.

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