Q2 Results: Bharti Airtel Sets Aside Rs 28,450 Crore For AGR Dues, Sees Uncertainty Ahead

Bharti Airtel Ltd. reported a loss of Rs 23,045 crore in the September quarter as it provided for dues pending to the government related to the 14-year-old adjusted gross revenue court dispute.

The Sunil Bharti Mittal-led firm said the company has provided Rs 16,815 crore towards licence fee that is payable, while Rs 11,635 crore has been kept aside for spectrum usage charges payable based on the definition of AGR, it said in its media statement. Overall, the company has provisioned Rs 28,450 crore as a one-off expense.

The company’s management is reviewing options and remedies available based on AGR decision, the media statement said. The company will require significant additional financing to discharge its obligations, it said.

“There can be no assurance of success of management’s plans to access additional sources of finance to the extent required, on terms acceptable to Group, and to raise these amounts in a timely manner,” Bharti Airtel said.

The telecom operator also sees “material uncertainty whether the company will be able discharge its liabilities” in normal course of business. “This uncertainty may cast significant doubt on the Group’s ability to continue as a going concern.”

India’s second-largest telecom operator was supposed to announce its earnings on Oct. 29, but postponed it to Nov. 14 due to an adverse outcome in the AGR case. The operator was approaching department of telecommunications to seek clarity on the total amount involved and request for support to deal with the adverse outcome, it said in an exchange filing.

The government is, however, adamant that telecom operators pay their dues as per the court’s order. The telecom department yesterday issued notices to the operators to clear their liabilities within three months and submit the requisite documents.

Bharti Airtel isn’t the only operator staring at uncertainty due to the court order. Earlier this week, Vodafone Group Plc.’s chief executive Nick Read said the India venture could be headed for liquidation if the government doesn’t ease its demand for the spectrum fee.

“If you don’t get the remedies being suggested, the situation is critical,” Read said at press conference following Vodafone’s earnings. “If you’re not a going concern, you’re moving into a liquidation scenario—can’t get any clearer than that.”

While the loss is significantly high, Bharti Airtel’s operational performance, which was released earlier, has been termed “robust” by analysts.

Rajan Mathews, Director General of Cellular Operators Association of India, said the industry needs to get to the bottom line of the issue. “Promoters have to ask if we keep pumping in money into these enterprises, what is the rate of return we can expect going forward?” he told told BloombergQuint.

The government needs to fix the legacy issues of sharing revenue after charging heavily for the spectrum, he said, in order to maintain a healthy competition within the industry. “The government takes 30 percent off the top, there is no other industry where the government does this.”

Watch | the conversation with Rajan Mathews here...

Key Earnings Highlights

• Net revenue rose 1.89 percent sequentially to Rs 21,131 crore.
• Operating profit increased 6.9 percent to Rs 8,860 crore.
• Margin expanded 200 basis points to 41.93 percent.
• Loss before exceptional items and taxes contracted to Rs 623 crore from Rs 1530 crore in the previous quarter.

Telecom operators are liable to pay around 4 percent and 8 percent of the AGR as spectrum usage charges and licence fees, respectively, to the telecom department. The operators were arguing that AGR should comprise revenue from telecom services, but the department insisted that AGR should include all revenue earned by an operator, including that from non-core telecom operations.

Analysts said telecom operators are incapable of paying thousands of crores as dues and penalties as they continue to bleed from a tariff war unleashed by billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd.

Analysts expect the government to support the industry in various forms by reducing licence fees and spectrum usage charges, increasing moratorium on annual spectrum payment, deferring zero-IUC (interconnect usage charge), refund/adjust accumulated credit against future tax pay-outs and introduce floor price for voice calls or mandate price increases.

The government support could also be in the form of waivers of certain penalty/interest amount. A committee of secretaries under the cabinet secretary was formed to examine the financial stress faced by India’s telecom operators and recommend a package for the sector, according to a government official.

Earlier this month, the telecom operator had released operational highlights for the September-ended quarter that showed a decline in its average revenue per user for the first time in a year.