Despite Vodafone Idea giving guarantee, the telcos market is seen gravitating towards a two-player dominant market with Bharti and Reliance Jio.
According to a research note by BofA Securities, "We view SC verdictas negative for Vodafone Idea as it stated it doesn't have money to give bank guarantees".
"Even in a scenario VIL gives guarantee, we see telcos market gravitating towards a dominant two player," the report said.
"We await to see if VIL promoters (Vodafone PLC and Birla group)provide guarantees. Their current stance is no incremental investment in the near-term. In this scenario, even if they give guarantee, potentially the India telcos market could still gravitate towards a dominant two player market with both Bharti and Jio (subsidiary of Reliance industries). This is because, VIL may struggle in the medium term to invest in their networks give a sizeable amount of cash may go towards paying the AGR fine/penalty," it added.
"On Bharti, we believe company is better placed given its stronger balance sheet but director guarantee an issue for telcos," it said.
The much awaited Supreme Court hearing on payment of AGR dues didn't end in any conclusive decision as the apex court couldn't decide on the time-frame for paying dues.
The SC asked the telcos to submit a reasonable timeline for staggered payments (20 years is too long as per SC), seeks government view on how to get dues and on security deposit and directs government to reconsider views on PSUs. The next hearing is on June 18.
"We consider today's verdict to be negative for VIL as the company said in court that it doesn't have money to give bank guarantees. It remains unclear to us what VIL could do to give guarantees. We would expect this to add overhang on Bharti Airtel as well given lack of clarity on VIL's future," the report said.
On Bharti, the report said the company is better placed to give guarantee given its stronger balance sheet.
"In our view, in general, a key debate which telcos could face is around personal guarantees by directors. This is because if the telcos get an extension of 10-year payment then the directors would remain liable for a longer period, even if they were no longer directors at the company," it added.
"Post the June 18 verdict; we don't see further legal options for telcos. In theory an ordinance could be passed in parliament (but we consider that as a low possibility event as it would be politically difficult)," the research said.
CLSA said in a note, "We believe with likely AGR relief in staggered payments and lower DoT final demand, Vodafone Idea will reconsider insolvency plans."
The report said linked to AGR case is VIdea management decision to declare insolvency besides Bharti Infratel merger plans with Indus Towers (owned 42 per cent by Vodafone and 11 per cent by VIdea).
Bharti Infratel postponed today's scheduled merger meeting to allow time for all parties to consider the AGR hearing outcome, this is now likely to be before 24 June.
Goldman Sachs said in a note that while a potential longer payment period to telcos for their AGR dues could aid Vodafone Idea from a near term liquidity standpoint, its absolute net debt of $ 22 billion including AGR liability as of FY20 would mean ARPU for the industry would need to be more than Rs 230 per month by FY23 (1.8x vs current VIL ARPU) for Vodafone Idea to just remain FCF neutral.
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