AGR deferment has resuscitated the idea of a three-player market: Analysts

 While most brokerages have given a thumbs up to the development and suggest the provisions give some breathing space to Vodafone Idea (VI), Bharti and Reliance Jio, too, stand to gain

The government’s four-year breather to telecom companies from paying spectrum and adjusted gross revenue (AGR) has fired up the telecom stocks at the bourses in the past two trading sessions.

While most brokerages have given a thumbs up to the development and suggest the provisions give some breathing space to Vodafone Idea (VI) – at least for four years – Bharti and Reliance Jio, too, stand to gain in case VI is unable to retain customers, improve connectivity and invest in ramping up the 5G network infrastructure in the long run.

Here’s how leading brokerages have interpreted the move.

Jefferies

The government's four-year moratorium on AGR/spectrum payments will offer VIL cash-flow relief and could lead to the government taking up a sizable stake in the company. However, Bharti's usage of its Rs 117 billion annual cash-flow relief for capex will accelerate market share shifts in its favour. We expect Bharti to gain 340 basis (bps) market share to 39 per cent over FY22-24 driving 20 per cent CAGR in India mobile EBITDA. We raise our price target to Rs 850 on higher multiples to factor potential growth acceleration. Retain Buy rating on Bharti Airtel.

CLSA

Deferred spectrum payments (interest + principal) in fiscal 2022-23 (FY23) for Vodafone Idea, Bharti Airtel and Reliance Jio would have been 44 per cent, 7 per cent and 5 per cent of their annualised Q1-FY22 revenues, respectively. Although interest will be applicable in moratorium, spectrum and AGR relief amount to $11 billion cash-flow savings over FY22-FY25 for Vodafone Idea are crucial for its survival. This major relief package and inevitable tariff hikes will improve the health of the debt-laden sector and India mobile will remain a three private player market.