Four-year moratorium on AGR dues offers relief for telcos , Vodafone idea share price to gain ?

The Cabinet on Wednesday announced a telecom relief package as part of nine big reforms and five process reforms. The package includes a moratorium with interest rates for four years, a change in the definition of contentious Adjusted Gross Revenues (AGR), 100% FDI through automatic route, spectrum sharing, single-window RoW clearance for tower installation, and digital KYC among others.

• What's The Story?

Survival worries for Vodafone Idea (VI) may be finally over with the government announcing a slew of relief measures including a four year moratorium on regulatory dues on Wednesday to aid the telecom sector industry experts  said.  According to analysts, the moratorium which comes into effect from October onwards will allow the company to conserve capital close to the tune of Rs25,000 crore per year in combined spectrum and adjusted gross revenue (AGR) dues, enabling it instead investment in technology upgradation and capital expenditure including a participation in the forthcoming 5G spectrum auctions. “I think the concerns around the company’s survival are now off the table as strategic investors would now be keen to infuse capital given a credible roadmap, policy clarity and visible improvement of near term cash flows," said Prabal Basu Roy, former Director of Lucent Technologies and currently director and advisor to chairman of corporate boards.

The government has announced a four-year moratorium on the AGR dues of telcos. Telcos will also be allowed to surrender spectrums that have not been used. Telcos will be given an option of converting a part of their dues into government's equity now and some part after four years.

Other important proposals include a decrease in bank guarantees and redefining AGR to exclude 'non-telecom' items, again prospectively.

• What's Next?

“Investors who have already added these stocks to their portfolios may hold them for long-term capital gain as these moves may have an influence that will be felt in the next 2-3 years,” said Garg.

Rahul Sharma, cofounder of Equity99, advised investors to stay invested in the sector.“We are highly bullish on this sector after such a move by the government,” he said.

What we believe that this might boost up the market sentiment for the short term and help Vodafone Idea and its lender Yes bank, Indusind bank gain some market-cap but on a longer horizon, Bharati Airtel and Indus Tower seems to be the better positioned, while execution is the most critical task for all the players with their current resources.