Shares of Bharti Airtel Ltd and Vodafone Idea Ltd tumbled 2-6% on Thursday despite the government giving telecom operators the option to defer payment of spectrum dues by two fiscal years. The fall is in contrast to the gains the stocks had made earlier this week when private operators including Reliance Jio Infocomm Ltd announced plans to raise tariffs.

Deferment of spectrum payment dues will bring a reprieve for the troubled telcos. In the September quarter, licence fee and spectrum usage charges for Vodafone Idea was 1,114 crore, amounting to 37% of its operating loss, or earnings before interest and taxes. For Bharti Airtel, licence fee, revenue share and spectrum charges amounted to 1,325 crore, while operating loss was at 1,144 crore.

Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

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The waiver, combined with the proposed tariff hikes, is sure to improve cash flows at the companies. Analysts at Jefferies India Pvt. Ltd estimate the move will provide an annual cash flow relief of about 12,000 crore for Vodafone Idea and 8,300 crore for Bharti Airtel.

Much of this, though, seems to have been captured in the recent rally in share prices of these companies. Given the dire state of some telcos, the Street was expecting bigger relief measures. “The measures were slightly lower than expected. There was consideration of lowering interest rates, which has not been incorporated. We expect further relief measures from the government even with the price hike in December; Vodafone Idea will need support, especially around aggregate gross revenue (AGR) dues payment," the analysts said.

Importantly, analysts fear the financial situation of the troubled telcos may not see sustained improvement. The government will have to provide significant relief on the dues arising out of the recent Supreme Court verdict on spectrum and licence fee dues, or the way AGR is calculated. Worryingly, the government’s provisional estimates of AGR dues are substantially higher than the calculations of telecom companies. The government told the Parliament there was no proposal under consideration to waive penalties, implying no immediate relief.

While the Street expects relief measures on AGR, any delay or piecemeal measures will adversely impact the telcos’ ability to invest in network upgradation and prolong the indebtedness. This will adversely impact the narrative on recovery of the telcos. “To our understanding, the department of telecom can possibly decide to either waive off penalties and interest on penalties entirely, and/or allow for staggered payments. However, without any AGR payout relief, the ability of telcos to invest in networks will remain challenged and even raise concerns on the market structure," analysts at SBICAP Securities Ltd said in a note.

Considering the pain in the telecom sector, the relief over spectrum instalments was warranted. But it is clear that telcos need more to stop the bleeding, and for their stocks to see light again.

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