The relatively shorter payment timeframe for telecom operators to repay AGR dues exerts additional pressure on their cash flows and necessitates sizeable average revenue per user (ARPU) increase that can have an impact on the industry structure, according to investment information firm ICRA.
The Supreme Court on Tuesday pronounced its judgment on the adjusted gross revenue (AGR) case and allowed a 10-year payment term as against 20 years proposed by the Department of Telecommunications, with 10 per cent upfront payment for repayment amounting to about Rs 90,000 crore for the three telcos.
Ankit Jain, Assistant Vice President for Corporate Ratings at ICRA said the proposed payment pattern adds to the burden of the industry which is already saddled with elevated debt levels. This will also exert pressure on the cash-flows and leaves limited room for network capex and expansion, especially for the relatively weaker players.
"Assuming these payment terms are implemented on the balance amount to be paid, the telcos will have to shell out an amount of Rs 9,000 crore by March 31, 2021 as upfront payment followed by 10-annual instalments of nearly Rs 12,000 crore at 8 per cent rate of interest starting February 2022 till February 2031," he said.
The industry has been saddled with elevated debt levels amid consistently high capex requirements. As per ICRA estimates, the debt as on March 31, 2019 stood at Rs 5 lakh crore which witnessed a decline to Rs 4.4 lakh crore as on March 31 this year following the series of deleveraging measures undertook by private operators during FY20.
Moreover, despite the improvement in cash flow and moderation in capex intensity, the debt is further expected to increase to Rs 4.6 lakh crore as on March 31, 2021 owing to addition of AGR dues.
Anupama Arora, Vice President and Sector Head for Corporate Ratings at ICRA, said the 10-year payment for the AGR dues dampens the relief on auction payments to some extent and is likely to weigh heavily on the balance sheet of the weaker telecom operator, especially when the two-year moratorium gets over and auction payments start in FY23.
The government had earlier allowed deferral of the spectrum auction instalments for FY21 and FY22.