Tag: AGR

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Government Becomes Largest Stakeholder in Vodafone Idea: What Next?

The Government of India has become the largest shareholder in private telecom company Vodafone Idea. Vi has faced quite some turbulence in terms of its finances and is heavily burdened by debt to banks as well as the government. The government will be the largest shareholder in Vodafone Idea after converting all of its pending interest on Adjusted Gross Revenue (AGR) dues to equity. The government would now own a 35.8% stake worth Rs 16,000 crore in Vi. This piece covers all you need to know about the deal between the two entities. 

Click here to know more about the AGR dues saga that shook the telecom industry.

Government Holds The Largest Stake in Vodafone Idea (Vi)

Quite a few telecom companies came under pressure after a Supreme Court verdict ordered them to pay ‘pending’ AGR dues to the Telecom Regulatory Authority of India (TRAI). These dues ran into thousands of crores—something which they could not afford after a disrupted telecom sector. 

Moving on, the government had come up with financial relief packages for distressed telecom companies burdened by AGR dues. While these relief packages have managed to keep Vodafone Idea and Bharti Airtel afloat, they have done little to ensure faster recovery dues. Vodafone Idea owed the government ₹58,254 crore in AGR dues. It has paid back ₹7,854 crore or 13% of the total dues. The company faced stiff competition from its relatively better-off rivals Airtel and Jio. Both Vi and Airtel had the daunting task of clearing AGR dues along with expanding their business. 

The government eventually proposed converting all the pending interest on the spectrum and AGR dues into an equity stake in telcos. Vodafone Idea accepted the deal. 

It is a pretty common practice in the business world wherein a lender converts the pending debt into equity shareholding. The government now owns a 35.8% stake worth Rs 16,000 crore in Vodafone Idea. This deal has brought down the combined promoter holding of Vodafone Plc and Aditya Birla Group from ~72% to ~46%.  “The shares may be held through the statutory undertaking of the Unit Trust of India (SUUTI) on behalf of the Government of India or by any trustee-type or other suitable arrangement,” said Vodafone Idea in an exchange filing.

Vodafone Idea NOT a Public Sector Undertaking (PSU)

The stock hit the lower circuit after the announcement. The first question that comes to the mind of an average shareholder is: Will Vodafone Idea become a PSU? The answer is, no. 

The government holding a majority stake in Vi does not make the company a PSU. TRAI has confirmed that the government shall not pay to acquire any shares, nor does it intend to convert telcos into PSUs.

Vodafone Idea’s Managing Director Ravinder Takkar said in a statement that the government had no intention to manage the company’s business. He stated that the article of association was amended to allow voting rights to shareholders with taking over 13%, allowing promoters to make decisions even if their shareholding falls below 21%. Long story short, the promoters Vodafone Group and Aditya Birla Group will continue to manage the company.

Vodafone Idea’s shares rallied ~11% after the statement by MD Ravinder Takkar. 

Despite reassurances from government officials and company management, one must not forget that the government is the largest shareholder in Vodafone Idea. It could decide to move back on its word and take over or influence Vi’s management if the need arises. 

The Way Ahead

After the decision to convert pending dues into equity was announced, Vi’s shares nosedived ~20% in a single trading session. The company gained ~11% after MD Ravinder Takkar announced that the government had no intention to participate in management decisions.

After Vodafone Idea, Tata Teleservices said it is planning to convert its interest on AGR dues into government equity. Tata Teleservices has AGR dues of Rs 16,798 crore, of which it has paid Rs 4,197 crore. Following conversion, it is expected that the Government will hold nearly 9.5% of the company’s total outstanding shares. The company’s stock price (NSE: TTML) hit a lower circuit after the announcement.

There is also BSNL and a possible merger with the state-run telecom. Although the current stand is to not interfere in Vi’s operations, there is a possibility it could be changed.

Mukesh Ambani’s Jio had managed to capture a significant market share through its competitive pricing. According to a Competition Commission of India (CCI) report, there were 21 telecom companies in 2009. The figure died down to just 6 companies in 2021. Out of the six, two are financially distressed PSUs. One is defunct, and the remaining three are the only active private players in the country. The government is trying to keep afloat all three private players, i.e. Jio, Airtel, and Vodafone Idea. If one company shuts down, there would be a duopoly in the sector. A duopoly would give telecom companies greater bargaining power over their consumers, which would go against an average Indian citizen and thereby the government. 

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Market News Top 10 News

HCL Tech Reports 9% YoY Rise in Net Profit in Q1 – Top Indian Market News

HCL Tech Q1 Results: Net profit rises 9% YoY to Rs 3,213 crore

HCL Technologies Ltd reported a 9.4% year-on-year (YoY) increase in consolidated net profit to Rs 3,213 crore for the quarter ended June (Q1 FY22). Its revenue from operations rose 12.5% YoY to Rs 20,068 crore during the same period. The total contract value (TCV) of new deals stood at $1,664 million in Q1, an increase of 37% YoY. HCL Tech’s attrition rate for IT services declined from 14.6% in Q1 FY21 to 11.8% in Q1 FY22. The IT company’s board has declared an interim dividend of Rs 6 per share. 

Read more here. 

SC reserves order on Bharti Airtel, Vodafone Idea’s pleas in AGR case

The Supreme Court (SC) reserved its order on Bharti Airtel and Vodafone Idea’s pleas seeking correction of errors in adjusted gross revenue (AGR) demands. The SC stated that recalculation of AGR dues will not be allowed. The telecom operators had sought the correction in AGR demand, citing errors in the Department of Telecommunications’ (DoT) calculation of dues. You can learn more about the entire telecom AGR saga here.

Read more here.

ACC Q2 Results: Net profit jumps two-fold to Rs 569 crore

ACC Limited reported a 110% YoY jump in consolidated net profit to Rs 569.45 crore for the quarter ended June (Q2 CY21). The cement maker follows the January-December financial year cycle. Its revenue from operations rose 49.29% YoY to Rs 3,884.94 crore during the same period. Total cement volumes rose 43.7% YoY to 6.84 million tonnes (MT) in Q2. Revenue from its cement business increased by 43.9% YoY to Rs 3,672.31 crore.

Read more here.

HDFC Life Q1 Results: Net profit declines 33% YoY to Rs 302 crore

HDFC Life Insurance Company Ltd reported a 33% YoY decline in standalone net profit to Rs 302 crore for the quarter ended June (Q1 FY22). Its total premium rose 31% YoY to Rs 7,656 crore during the same period. The fall in profit was due to higher claim payout and higher provisions to mitigate the impact of the Covid-19 pandemic. HDFC Life paid over 70,000 claims in Q1. The gross and net claims provided amounted to Rs 1,598 crore and Rs 956 crore, respectively.

Read more here.

L&T Construction secures contracts under various businesses

The construction arm of Larsen & Toubro (L&T) has secured significant orders (in the range of Rs 1,000-2,500 crore) across various business segments. The power transmission and distribution business has won an order to construct a 220 kilovolt (kV) transmission line in Ladakh. It has also received an order to design, supply, construct, test, and commission a 132/11kV substation with associated cable works in Dubai city. L&T’s factory business has secured an order from a leading cement manufacturer to construct a 1.8 million tonne per annum (MTPA) grinding unit in Dolvi, Maharashtra.

Read more here. 

Centre to collect Rs 70,000 crore from asset monetisation of PowerGrid, NTPC, REC over five years

According to a report from ET Now, the Central government is likely to collect Rs 70,000 crore through monetisation of assets of state-owned power giants such as Power Grid, NTPC, and REC in the next five years. Around 50% of funds are likely to be utilised for boosting state transmission and power distribution infrastructure. Central public sector enterprises (CPSEs) will join hands with state power distribution companies (discoms) through joint venture agreements for support.  

Read more here.

Tatva Chintan IPO subscribed 15 times on second day of bidding 

The Rs 500 crore initial public offering (IPO) of Tatva Chintan Pharma Chem Ltd was subscribed 15.05 times on the second day of bidding. The IPO received bids for 4.90 crore equity shares against the issue size of 32.61 lakh shares. Retail investors have subscribed 23.74 times against their reserved portion. Non Institutional investors (NIIs) and Qualified Institutional Buyers (QIBs) have subscribed 12.21 times and 1.97 times, respectively, against their reserved portions. 

To learn more about the IPO, click here.

Indian Bank Q1 Results: Net profit jumps multifold to Rs 1,182 crore

Indian Bank reported a 220% YoY jump in net profit to Rs 1,182 crore for the quarter ended June (Q1 FY22). Net profit has declined 31% when compared to the previous quarter. Its Net Interest Income (NII) rose 3% YoY to Rs 3,994 crore during the same period. [NII is the difference between the interest income a bank earns on its lending activities and the interest it pays to depositors]. The gross non-performing assets (GNPA) ratio stood at 9.69% in Q1 FY22, compared to 10.9% in Q1 FY21. 

Read more here. 

GTPL Hathway Q1 Results: Net profit rises 16% YoY to Rs 47 crore

GTPL Hathway Ltd reported a 16.1% YoY increase in consolidated net profit to Rs 47.46 crore for the quarter ended June (Q1). Net profit has declined by 16.5% when compared to the previous quarter. Its revenue from operations rose 21.46% YoY to Rs 601.77 crore during the same period. GTPL Hathway is a leading provider of cable television and broadband services. The company serves customers in ~800 cities across 12 states in India.

Tata Steel Mining and Jindal Stainless signs MoU for joint mining operations

Tata Steel Mining and Jindal Stainless have signed a Memorandum of Understanding (MoU) to jointly unearth the Chrome Ore locked up in the boundary between their mines at Sukinda (Odisha). It would help in the conservation of chromite ore, which otherwise would have been left unmined forever. The companies have initiated steps to get necessary approvals from the concerned authorities before jointly starting mining operations.

Read more here.

NAM India Q1 Results: Net profit rises 16% YoY to Rs 182 crore

Nippon Life India Asset Management Ltd (NAM India) reported a 16% YoY increase in net profit to Rs 181.54 crore for the quarter ended June (Q1 FY22). Net profit has increased by 8.8% when compared to the previous quarter. Its total income rose 10% YoY to Rs 369.18 crore during the same period. The average quarterly assets under management (AUM) rose 33% to Rs 2.40 lakh crore in Q1.

Read more here.

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Daily Market Feed

Oxford University COVID 19 Vaccine Hopes – Share Market Today

News Shots

  • The first set of results from early-stage clinical trials of Oxford University Covid 19 vaccine has shown that the vaccine is safe and induces an immune reaction. Indian vaccine manufacturer Serum Institute, which has a manufacturing agreement with British pharma giant AstraZeneca, announced that it would seek regulatory approvals to manufacture the vaccine in bulk in India.
  • AGR Case: The Supreme Court to announce the AGR repayment timeline by next hearing on August 10. Vodafone Idea had paid Rs 1000 crores to Department of Telecommunication before the hearing and expects 15 years to make the remaining in payment in instalments. The court also expressed doubt over Vodafone Idea’s capacity to clear the dues, asking on how to “rely” on the company for payment over a period given its financial position. 
  • Reliance Jio has sought spectrum in certain frequencies from the Department of Telecom for holding trials of the latest 5G technology. The company’s wholly-owned US-based subsidiary Radisys has already started selling some of the 5G solutions to foreign companies.
  • Jubilant Life Sciences has received drug regulator DCGI approval for generic version of antiviral drug remdesivir 100 mg/vial for restricted emergency use in India for treatment of severe COVID-19. Also, Mr Rakesh Jhunjhujnwala has increased his stake in Jubilant Life Sciences by 0.70%.
  • ACC Cements reported a 40 per cent fall in consolidated net profit at Rs 270.95 crore during the June quarter of financial year 2021 as against Rs 455 crore in the same period last year, on the back of subdued demand for cement as the construction sector is hit by the nationwide lockdown.
  • SBI Card posted 13.80 per cent year-on-year (YoY) rise in net profit at Rs 393.29 crore for the quarter ended June 30. It had posted a net profit of Rs 345.59 crore in the corresponding quarter last year.
  • Dabur has filed a case in the Delhi High Court alleging that its Mumbai rival Marico’s Saffola Honey “imitated” the bottle, trade-dress, label and packaging of Dabur’s honey.
  • Tata Power’s arm CGPL – which runs Mundra power plant – has raised Rs 350 crore by issuing non-convertible debentures (NCDs) on private placement basis.
  • Britannia Industries will invest over Rs 700 crore to open five new manufacturing units in the next two-and-a-half years to meet the growing demand in different parts of India, its MD Varun Berry said on Monday.
  • Q1 Result Announcements Today:
    • Hindustan Unilever (HUL)
    • Axis Bank
    • Bajaj Finance
    • ICICI Prudential Life
    • Bajaj Finserv
    • Crisil
    • DCM Shriram
    • IndiaMART InterMESH
    • Syngene International

What to expect today?

  • Yesterday was a day with the least movement in NIFTY in the last 3 months. NIFTY traded in a very small range of just 80 points (10,950 – 11,030). So, 11,000 did act as a resistance but there was a rally before closing (thanks to IT led by INFY) and NIFTY closed strongly near 11,030.
  • Global markets are on a high. US, European and Asian markets are mostly up, NASDAQ reaching all time high. SGX NIFTY is currently trading very high at 11,130, indicating a huge gap up opening in the Indian Market!
  • NIFTY is likely to trade between 11,000 and 11,200 today. There is support at 10,970 and 10,930, and resistance at 11,050 and 11,090.
  • Highest Call Open Interest at 11,500, followed by 11,000. Highest Put Open Interest at 10,500, followed by 10,800. 
  • Foreign institutional investors (FIIs) bought shares worth Rs 1,709.97 crore, while domestic institutional investors (DIIs) sold shares worth Rs 1,521.99 crore.
  • Banks, as conveyed yesterday, started well but ended on a low. They could still be under watch.
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Market News

SC reserves order on the timeline for AGR dues to be paid.

SC AGR

The Supreme Court today once again reserved its order on the much-talked-of AGR (Adjusted Gross Revenue) case. The timeline for the payment of AGR dues is still debatable.

The Sum and Substance of Today’s Hearing

  •  A three-judge bench of Justices Arun Mishra, S Abdul Nazeer and MR Shah heard the case. The court reserved their order to decide the timeline withing which the telecom operators were to pay their dues.
  • The SC stated that the calculation of AGR dues by the Department Of Telecommunications should be treated as final as that there is no room for self-assessment or renegotiation by any of the respondents.
  • Vodafone-Idea represented by counsel Mukul Rohatgi expressed poor liquidity, disposable assets and lack of sufficient funds on part of Vodafone-Idea to be able to pay the dues. Moreover, he requested for a period of 20 years and at best 15 years for Vodafone-Idea to pay its AGR dues.
  • Bharti Airtel represented by counsel Abhishek Manu Singhvi stated that the Government had wrongly charged Bharti Airtel for Spectrum Usage Charges (SUC) which should not be a part of AGR dues. He requested for a period of 10 or 20 Years since upfront payments could affect the 11,000 employees of the company and services provided by the company itself.
  • Senior Advocate Mohan Parasaran on behalf TATA Telecommunications stated that the company submits to SC that a 7-10 year period would be reasonable for repaying AGR dues.

As per DoT estimates, telecom companies owe a total of Rs 1.19 lakh crore with payments received so far at Rs 26,896 crore. The balance amount to be paid is currently at Rs 92,520 crore.

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Editorial

The entire Telecom AGR saga

agr

What is AGR- Adjusted Gross Revenue?

Whenever a company makes money, they are liable to pay tax to the government. Telecom companies charge Interconnect Usage Charge (IUC) but it is not a part of the income which stays with them. They have to pass it to different operators. Thus, this charge only inflates their total revenue. It won’t be fair if the government taxes a telecom company on this inflated number. Hence, the total gross revenue is adjusted downwards which is known as Adjusted Gross Revenue.

Where it All Began

After 1994, telecom companies were allowed to operate in a fixed license system which was very expensive. From 1999, the government allowed the telcos to migrate from the expensive license-based model to the revenue-sharing model. This model helped the company to share a part of what they earned rather than paying out a high fixed amount. The payment under the new model was divided into two parts annual license fee (LF) and spectrum usage charges (SUC). The former would be 8% of AGR and the latter would be 3%-5% of AGR.


This AGR was the base of the argument which started in 2005 when the Cellular Operators Association of India (COAI) challenged the definition of AGR calculation that was followed by the government. This leads us to dive deep into the definition given by both the parties and the dispute which continued for a decade and a half.

The “AGR Definition” Dispute

The telecom companies believe that the government should be charging tax from the revenue generated only from the core business and not from other businesses. For example, a telecom company like Airtel will generate revenue not only by providing services in the telecom area but also by selling off its assets or by investing in equities or bonds.

Now, the DoT says that AGR includes the revenue generated by the company as a whole and not only from its core business. They believe that companies are earning revenue only because they are allowed to do business in the country. Hence, they are liable to pay taxes on their total AGR, no matter if it is coming from the company’s core business or the non-core business. 

We bring you a timeline of things that have shaped this whole saga –

October 24, 2019

The judgment day. After 14 years of indecision and uncertainty, the Supreme Court of India announced their mammoth verdict. The SC decided to widen the definition of AGR and include revenues coming for non-core items for taxation. The bombshell was that the apex court has asked the companies to pay all their dues amassing Rs 1.19 lakh crore by 23rd January 2020.

January 23, 2020

Vodafone Idea, Bharti Airtel and others miss the deadline citing poor financial health of their companies. The government also asked DoT not to take any action against the defaulting on payments.

February 14, 2020

As expected, the red-hot SC blasted the Centre, DoT and the telecom companies for not respecting their orders. The apex court declared March 17 as the new deadline for the companies to clear all their AGR dues. 

March 18, 2020

In the past few weeks, telecom companies started clearing their dues but only partially. Supreme Court was asked to give 20 years for companies to clear their AGR dues. The apex court fiercely rejected the idea and also declared that companies won’t be allowed to self-assess their dues. 

June 18, 2020

Supreme Court cooled its stance a tad bit. They asked the companies to present a detailed plan of action as to how they intend to clear their dues. This plan of action should consist of the years that the companies would be asking for and the guarantees they will be giving in the meantime. No allowance for staggered payment would be issued if companies fail to provide adequate bank guarantees and a proper roadmap for payment in upcoming years. 

July 20, 2020

The Supreme Court reserved its orders for the AGR payment timeline. They reiterated that the calculation done by DoT is final and binding. Vodafone accepted the dues levied on them but requested 15 years to pay back the dues. Their counsel stated that the company is in “deep waters”. They even asked the government to retain the Rs 8,000 crore worth of GST refunds for this year.

With all this, the Supreme Court voiced their concern on how they can “rely” on a company to pay their dues in future if they already are in shambles. The next hearing is scheduled on 10th August 2020.

AGR Dues for Vodafone Idea: 

Dues Outstanding: Rs 58,254 crore

Dues Paid: Rs 7,854 crores 

Balance Due: 50,400 crore

Vodafone’s counsel told the Supreme Court that the company is “barely afloat”. If the apex body forces the company for an upfront payment, they will be forced to shut down their operations in India which will directly impact over 1100 employees.

AGR Dues for Bharti Airtel:

Dues Outstanding: Rs 43,980 crore

Dues Paid: Rs 18,004 crore 

Balance Due: Rs 25,976 crore

Airtel has paid 60% of the total dues paid by the telecom companies till now. Several analysts believe that Airtel is in a much better financial condition when compared to Vodafone and will be able to pay its dues soon. Doubts remain on the survival of Vodafone Idea.

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Telecom AGR hearing on 20th July – Vodafone Idea in Focus

Vodafone Idea

The AGR saga continues and its next hearing will be on 30th July. This story of Adjusted Gross Revenue from telecom sector has been continuing for the past 16 years.

Supreme Court’s order of October 2019, widened the definition of AGR to include non-core items. Companies like Airtel, Vodafone and others missed the apex court’s deadline of 23rd January to make payments.

After SC’s decision, the Department of Telecommunication estimated that Vodafone Idea owes Rs 58,254 crore and Bharti Airtel owes Rs 43,980 crore. Out of this amount, Vodafone Idea and Bharti Airtel have paid Rs 6,354 crore and Rs 18,004 crore respectively.

Both the telecom companies have stated that, currently, they are not in a position to pay statutory dues anymore. Therefore, they have asked for a period of 20 years and offered to pay in a staggered form during that timeline. Supreme Court didn’t accept this plan but have asked the telecoms to present a detailed roadmap of the payment timeline.

Vodafone Idea has voiced their concerns with the decision. They have already warned that they will be forced to shut their shops in the country if asked to pay their dues without being in instalments.

Telecom experts believe that while Bharti Airtel can manage to clear the dues, Vodafone Idea’s financial position looks uncertain.