Telecom stocks tank on rating action; here’s what experts are saying about Airtel, Voda Idea and Jio

NEW DELHI: Troubles for two of India’s telecom giants — Bharti AirtelNSE 1.71 % and Vodafone Idea — are getting acute each day with the latest whammy coming in the form of ratings downgrades.

Fitch Ratings on Wednesday put Bharti Airtel ‘rating watch negative’ list while Care Ratings downgraded Vodafone Idea on ‘long-term bank facilities’ and non-convertible debentures.

Vodafone Idea said on Wednesday that Care Ratings has downgraded its rating on ‘long-term bank facilities’ and non-convertible debentures’, citing the recent court ruling on the AGR issue and extension of timelines with regard to sale of Indus Tower stake to Bharti lnfratel.
Company Summary

Fitch Ratings put Bharti Airtel on ‘rating watch negative’ over unpaid regulatory dues arising from a recent Supreme Court ruling.

Fitch placed Bharti’s ‘BBB-‘ Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative (RWN).

Shares of Bharti Airtel slipped 0.75 per cent to trade at Rs 365.50 in early trade on Thursday, while the BSE Telecom index fell 8.73 per cent to 878.48 at around 9.35 am (IST). Vodafone-Idea was down 7 per cent at Rs 3.54.

The benchmark BSE Sensex was trading 193 points or 0.48 per cent, higher at 40,245.

The Supreme Court, last week, upheld government’s way of computing the telecom revenue, from which dues like licence fee and spectrum usage charges are derived, and as a result Vodafone-Idea, Bharti Airtel and other telecom operators may have to pay the government a whopping Rs 1.4 lakh crore after including penalty and interest components.

Vodafone Idea may have to pay about Rs 40,000 crore, while Bharti Airtel faces a liability of around Rs 42,000 crore (including licence fees and spectrum usage charges), PTI reported referring the telecom department’s initial calculations.

Following this development, Airtel on Tuesday deferred its September quarter result announcement till November 14. The company was earlier scheduled to approve and release its Q2 numbers on Tuesday.

“…the management of the company recommended to the board of directors that the agenda item related to the approval of audited financial results for the second quarter and half year ended September 30, 2019… be deferred till November 14, 2019, on account of the fact that more clarity is needed on the AGR matter arising out of recent judgement of… the Supreme Court,” Airtel said in a regulatory filing.

Sanjiv Bhasin, Executive VP, IIFL Securities said, “Telecom stocks are a mixed bag with pricing power coming back. Jio and Bharti Airtel are going to be benefitting. However, the AGR penalty means extra outlay and debt burden will be high. We think the government will give some recourse to that.”

Commenting on the Supreme Court order, Deven R Choksey, MD, KR Choksey Investment Managers in an interaction with ETNOW said that as far as Bharti Airtel and Vodafone are concerned, they have not factored in the provisions part in the books. The amount of money that is required to be put in is going to quite stress their books significantly.

“Besides, the entire space is moving in the direction of 5G. And to have more funds in 5G related network rollout, it is going to be a bigger challenge. As a result, companies like Jio would be relatively better placed in the process. It is not good news for these telcos as far as the Supreme Court ruling is concerned. We will have to see how they mobilise funds in the next three months in which the court has asked them to put in money with the government,” Choksey added.

Other telecom players including GTL Infra, Bharti Infratel and ITI were down between 1-3 per cent. On the other hand, MTNL, RelianceNSE -1.00 % Comm, HFCL were up between 2-5 per cent.