Synopsis: The recent telecom spectrum auction in India garnered Rs. 11,340 crore, with Vodafone Idea (VIL) potentially paying in 20 annual installments of Rs. 350 crore each, or upfront for two years, raising its debt by 1.4% to Rs. 2.3 lakh crore. Bharti Airtel, spending over Rs. 6,857 crore, may opt for full payment or installments, increasing its debt by 4.6% to Rs 1.4 lakh crore. Reliance Jio (RJio) bid Rs. 970 crore, with payments adjusted from its earnest money deposit (EMD).
Motilal Oswal Financial Services (MOFSL) stated that Vodafone Idea (VIL) can choose to either pay in 20 equal installments of Rs 350 crore each or make an upfront payment for the first two years, followed by installments for the remaining 18 years.
The telecom spectrum auction has concluded, with most bids aimed at renewals and some for capacity expansions.
The Department of Telecom (DoT) has received approximately Rs. 11,340 crore from the spectrum auction.
MOFSL mentioned that DoT might receive the full payment of Rs. 6,860 crore from Bharti Airtel, while Vodafone Idea has the option to pay in yearly installments — Rs. 350 crore upfront, with the balance spread over the next 20 years.
Payments for RJio may be adjusted against its earnest money deposit (EMD).
If Vodafone Idea and Bharti Airtel opt for installments, their annual payments would be 3% and 1% of EBITDA, respectively.
Ankit Jain, Vice President and Sector Head - Corporate Ratings at ICRA Limited, remarked that the spectrum auction results were largely in line with ICRA's estimates, garnering around Rs. 11,340 crore for the exchequer.
This translates into an annual payout of about Rs. 1,100 crore over 20 years at an 8.65% interest rate for the telcos.
The auction saw participation primarily for the renewal of expiring spectrum in the 900 MHz and 1800 MHz bands, with some purchases in the 2100 MHz and 2500 MHz bands to strengthen networks.
There was no activity in other bands.
Bharti Airtel was the highest spender in the auction, acquiring spectrum worth over Rs. 6,857 crore, followed by Vodafone Idea at Rs. 3,510 crore, and Reliance Jio Infocomm at approximately Rs. 974 crore.
Only 1% of the total spectrum on offer was sold, representing 12% in value, according to Jain.
MOFSL noted that the DoT has not mandated any upfront payment, allowing operators to pay in installments at an 8.65% interest rate over a 20-year license.
Bharti Airtel may opt for the full payment option, but if not, this will increase its net debt by 4.6% to Rs. 1.4 lakh crore.
The annual installment of Rs. 670 crore would be 1% of its EBITDA.
MOFSL reiterated that Vodafone Idea could choose 20 equal installments of Rs. 350 crore each or make an upfront payment for the first two years, followed by installments for the remaining 18 years.
This could increase its debt by 1.4% to Rs. 2.3 lakh crore.
The annual installment of Rs. 350 crore would be 2.7% of its EBITDA.
Despite its high EMD of Rs. 3,000 crore, RJio showed limited participation, with bids worth Rs. 970 crore for 1800MHz (14.4MHz in two circles).
The balance EMD will be returned to RJio.
RJio bid for 1800MHz to improve 4G connectivity, having previously acquired blocks in the 700MHz, 3300MHz, and 26GHz bands during the 5G auction, according to MOFSL.
ICRA's Jain commented that no material adverse impact on the industry's balance sheet is expected due to the muted participation levels.
Debt levels, which stood at Rs. 6.4 lakh crore as of March 31, 2024, are expected to moderate to around Rs 6.2-6.3 lakh crore by March 31, 2025, despite the addition of deferred liabilities, given the anticipated improvement in profit generation.
Total annual payments towards deferred spectrum liabilities for the industry, including this spectrum auction, will be around Rs. 17,000 crore for FY2025, followed by more than Rs. 45,000 crore annually thereafter.
Centrum Broking maintains a positive outlook on the sector, with 2G to 4G migration, increased data monetization, and expected tariff hikes supporting ARPU growth for telecom service providers in the near term.
They anticipate a 15% tariff hike in Q2FY24.
Additionally, 5G-related capex is expected to moderate in FY25 for Jio and Airtel.
"Bharti Airtel is on strong footing with industry-leading ARPU, a growing subscriber base, and an excellent track record in business execution, and is expected to deliver robust performance moving forward. VIL continues to lose subscribers, but the recent fundraise should help increase its capex to augment its network infrastructure. Reliance Jio is expected to maintain a steady growth trend in subscribers and ARPU, though subscriber growth might moderate in the future," Centrum Broking stated.
In conclusion, the recent telecom spectrum auction in India, though modest in participation, has set the stage for significant financial maneuvers among the major players.
Vodafone Idea, Bharti Airtel, and Reliance Jio face varying impacts on their debt levels based on their payment choices.
Despite the potential increase in liabilities, the industry's debt levels are expected to stabilize, supported by improved profit generation and strategic growth initiatives.
The sector remains poised for positive growth driven by technological migration, data monetization, and anticipated tariff hikes.
Bharti Airtel stands strong with robust performance prospects, Vodafone Idea's recent fundraising offers a potential boost, and Reliance Jio continues its steady expansion.
The overall outlook for the telecom sector remains optimistic.
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