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Voda Idea & Airtel post Rs 74,000 crore loss in Q2 on AGR provisioning

An executive at one of the telcos said these were “notional accounting losses” and not operating losses.

ET Bureau|
Nov 15, 2019, 07.31 AM IST
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On Thursday, the Vodafone Idea stock plunged 20.3 per cent to Rs 2.95, just off its all-time low, while Airtel shares closed 1.6 per cent lower at Rs 362.65 on BSE.
New Delhi: Vodafone Idea and Bharti Airtel have raised doubts over their ability to continue as going concerns while posting unprecedented losses of Rs 50,921.9 crore and Rs 23,045 crore, respectively, for the July-September quarter, after provisioning for adjusted gross revenue (AGR)-based dues following a recent Supreme Court ruling.

Vodafone Idea — whose quarterly loss was the worst in India’s corporate history — has set aside Rs 25,680 crore, while Bharti Airtel — which posted the third-worst quarterly loss ever for India Inc — provided for Rs 28,450 crore, the two companies said in separate statements Thursday.

An executive at one of the telcos said these were “notional accounting losses” and not operating losses.

“It is to be noted that our ability to continue as going concern is dependent on obtaining the reliefs from the government... and positive outcome of the proposed legal remedy. Pending the outcome of the above matters, these financial results have been prepared on a ‘going concern’ basis,” Vodafone Idea said.

Bharti Airtel, on its part, warned that it may not be able to raise additional funds to pay for more government dues on the back of the Supreme Court judgment that expanded the definition of AGR to include non-core items.

“...there can be no assurance of the success of management’s plans to access additional sources of finance to the extent required, on terms acceptable to group, and to raise these amounts in a timely manner,” Bharti Airtel said.


Analysts express concerns over negative signals

“This represents a material uncertainty whereby, it may be unable to realise its assets and discharge its liabilities in the normal course of business, and accordingly may cast significant doubt on the group’s ability to continue as a going concern,” Bharti Airtel added.

A going concern refers to a company that has the ability to meet its financial obligations for the next 12 months.

Analysts expressed concern over the negative signals that struggles of Bharti Airtel and Vodafone Idea would send to global investors.

“When two companies — that were India’s top two telcos not too long ago — are suddenly struggling to continue as going concerns, the signs are ominous to say the least. The government must do something to provide relief to the sector in a balanced and fair manner, failing which global investor confidence in India’s telecom space is bound to suffer a serious setback,” said Rohan Dhamija, telecom expert and partner at Analysys Mason.

Both companies are among the worst hit by the Supreme Court order of October 24, which left 15 telcos facing over Rs 1.3 lakh crore in additional statutory dues. As per the telecom department’s calculations till July, Vodafone Idea and Bharti Airtel need to pay combined dues of over Rs 80,000 crore in less than three months.

Licence fees and SUC are paid on the basis of AGR.

Vodafone Idea estimated that till September 30, its dues were Rs 27,610 crore towards licence fees and Rs 16,540 crore for SUC, including interest and penalties. Its revenue for the June-September quarter was Rs 10,440 crore, with operating income of Rs 3,347.1 crore and net debt of Rs 1.02 lakh crore.

The one-time charge was “after adjusting the available provision and potential payments, on satisfaction of contractual conditions, under a mechanism with Vodafone Group”.

Vodafone Group on Tuesday said its “potential exposure under this mechanism is capped at Rs 8,400 crore, or €1.1 billion”.

Sunil Mittal-led Bharti Airtel said it has provisioned for licence fee dues of Rs 16,815 crore, as estimated based on the court order. In addition, an amount of Rs 11,635 crore has been set aside for SUC dues. Overall provisioning was Rs 34,260 crore, which also included accelerated depreciation on 3G network equipment. Its consolidated revenue for the quarter ended September was Rs 21,131 crore, with operating income of Rs 8,936 crore and net debt Rs 1.18 lakh crore.

“…Company (Airtel) believes SUC is a charge related to use of spectrum and should be levied only on the AGR earned from wireless access subscribers/services. These provisions have been made without prejudice to the company’s right to contest DoT’s demands on facts as well as on rights available in law,” Airtel said, a view reflected by Vodafone Idea as well.

Appeal for urgent relief

Both telcos have appealed for urgent relief from the government, including a waiver of interest and penalties on the AGR-related dues, lower taxes and levies, and a moratorium on spectrum payments. They are also planning to file a plea seeking a limited review of the AGR verdict.

“We are in active discussions with the government seeking financial relief following the recent Hon’ble Supreme Court ruling,” said Ravinder Takkar, MD of Vodafone Idea.

Gopal Vittal, Bharti Airtel MD for India and South Asia, said Airtel is talking to the government for relief and is hopeful the Centre will take a “considerate view” given the fragile state of the industry.

Airtel said it is reviewing its options and remedies available, “including but not limited to filing petitions before the Supreme Court and also seeking other reliefs, with others affected in the industry, from the government”.
telecom-graph

A high-level panel of secretaries set up to suggest ways for relief has proposed a two-year moratorium on spectrum payments besides reducing licence fees to 5 per cent of AGR, from 8 per cent at present. However, the panel wants the telcos to move court for relief on AGR dues.

On Wednesday, however, the telecom department shot off notices to all telcos, asking them to self-asses their respective AGR dues and pay up within three months of the SC order.

On Thursday, the Vodafone Idea stock plunged 20.3 per cent to Rs 2.95, just off its all-time low, while Airtel shares closed 1.6 per cent lower at Rs 362.65 on BSE.

“…I don’t see Vodafone Idea surviving if no relief is forthcoming from the government,” Naveen Kulkarni, research head at Reliance Securities, told ET.

“Airtel should perhaps weather the shock, but its balance sheet will take a severe jolt and its future game plan could also suffer a setback, putting all capex plans potentially on hold,” he added.

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