AGR verdict is bad news

On Friday, the Supreme Court dismissed the plea by Bharti and Vodafone Idea seeking a review of the AGR calculations due to alleged errors in computation. The Supreme Court was emphatic that there was no question of any review and the original judgment would hold. That closes the doors for any possible reduction in the AGR liability for Bharti and Vodafone Idea. Of course, they still have 10 years to pay up the full sum, but it is a huge burden nevertheless. 

Steeper impact on Vodafone

The SC judgment virtually restores the status quo in the case. Let us look at the discrepancies claimed. Bharti Airtel has paid Rs.18,000 crore and claims an outstanding of Rs.13,000 crore. The SC approved AGR levy is Rs.44,000 crore, but the gap is not too big here. In the case of Vodafone, it has paid Rs.7,800 crore and pegs outstanding at Rs.21,500 crore payable. However, DOT claims a total amount of Rs.58,000 crore from Vodafone Idea. In the case of VI, the gap is much wider. More importantly, Vodafone is in no financial position to even honor part of that commitment. 

Basic business challenges

With these kind of outstanding amounts, the bigger challenge for Vodafone is the business performance. Vodafone has been losing subscribers to Bharti and Jio consistently each month. Its net worth is already wiped out with accumulated losses of more than Rs.120,000 crore. To add to the worries, Vodafone also has Rs.180,000 crore of bank debt, and that is the biggest concern at a macro level. Remember, in the last 4 quarters, Vodafone UK has been consistently warning that the India business could soon become unviable. They even doubt if VI can continue as a going concern. With huge bank loans, millions of jobs and operational creditors at stake, it is going to be a challenge, either ways. 

Disruptive solution is inevitable

There are no easy answers at this point of time. VI has become commercially unviable and each day of operation only adds to its losses. Both Vodafone UK and Aditya Birla Group have refused to infuse further capital into the business. Most investors are wary of committing money looking at the speed at which Vodafone is losing customers. It is time for the government to take the initiative and syndicate a proper resolution to the issue. It may be a case of private sector failure but the macro externalities are huge. Government must intervene and forces a solution. The earlier this is done the better it is for Indian business!