Vodafone Idea, Bharti Airtel, Reliance Jio AGR Dues Case - Detail Analysis.

Friends, a couple of years from now when you used to take telecom industries name, You used to get a lot of names in your mind, some time past Reliance, Aircel, Vodafone, Idea as they were different aside from that Airtel. There have been 15 such companies within the telecom sector.

If I mention as of today, there are only four companies within the telecom sector, Reliance Jio, Airtel, Vodafone - Idea and Government sector company, BSNL.  Remainder of the businesses have closed down or are at the verge of it. there have been many reasons that the businesses couldn't sustain here. the remainder of the four companies here also are in problem explanation for the AGR dues.

Talking about AGR Dues, Adjusted Gross Revenue( AGR)

What is it? How does it function? Why these telecom companies are under such a drag now?

Let's mention this stuff during this article. Read the complete article, in order that if you're planning on investing in telecom sector you recognize which things to stay in mind. We will tell you this stuff by the end of this article. This article is vital for your investing knowledge or if you have already invested or are planning to. We'll also point out the supreme court judgment about the AGR Dues but it is vital for you to understand the facts regarding it as an investor.

Let's start with today's article about AGR.

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Let's visit history first to know from where the AGR issue started and its implications on companies if I talk about before 1999, if any company operated in the telecom sector they had to give a fixed license & there was no revenue sharing model. After 1999,  the govt introduced a replace old model here called distribution Model or Revenue Sharing Model. Companies had to offer a fixed percentage of their revenue to use the facilities, licenses to Government.  Initially, this revenue share was high then this percentage decreased to eight by 2008, which was very less.

You might be thinking from where did this AGR issue begin? What is AGR?  what is the full form of AGR?

 Its full form is Adjusted gross revenue. which suggests a specific fixed share of their revenue will need to be shared with the govt. The problem which got raised in DOT (Department Of Telecommunications) and companies were the cause of its definition initially. Companies enforced that the revenue share. Companies will need to give should be from their core business. Companies will give AGR percentage on core businesses which used the govt facilities and infrastructure.

FOR EXAMPLES:-

Here I will be able to filter out your misconception first, say if your sales are of Rs 100 and your profit is of Rs 10 then the AGR dues you'll need to pay are from the Net Revenue not on Net Profit consistent with this the amount becomes very big. 

AGR definition argument started from there, it continued to different courts. Courts tried to sort this fight but they might not find proper answer.  DOT visited the supreme court with it and when the court passed its judgment in 2019 was in favour of govt and DOT. Court declared that the dues will need to be paid in accordance with the definition set by DOT and Govt. not on the premise of core revenue. Companies pay heavy liabilities. The interesting thing here is that they will need to pay the dues retrospectively. Retrospectively here means the companies will need to pay the old dues with the interest of the past years.

SOME USEFUL POINTS

It's said that the Telecom companies have a liability of Rs 1.45 lakh crores which they're going to need to pay the govt. Supreme Court very aggressively asked the telecom companies to pay the dues within the next three months. That was the time when Reliance Jio entered the market and therefore the companies weren't within the position to pay the dues. At that time Government took many steps to get rid of the stress from the Telecom companies like initially they got a moratorium of a couple of years. After which Supreme Court stringently asked the rationale to Gov for not collecting the cash from the companies. Telecom Companies aren't in a very good position already.

 If I mention today, Airtel has already done some payment but Airtel still have the liability of Rs 25000 Cr. Vodafone Idea (VI)  includes a liability of quite Rs 50000 Cr which they need to pay under AGR Dues.

As you recognize this company is already during a financial problem & it booked a loss within the previous couple of quarters, it had been the most important loss within the financial history of India. The news I gave you about AGR Liability of 1.45 lakh crore and its history, I told you about the liability on Airtel and Vodafone, this news was till 2019 end.  In recent times you would possibly have heard within the news that judgment on AGR goes to return out.

1. What is that judgment?
2. What is the difference between the old issue and therefore the new issue?
3. What is the difference between them?
4. Why is it said that there is often a positive or negative effect on different companies of this? 

Before the limelight was more on airtel, Vodafone but now even Reliance JIO is in the limelight let's talk about the ongoing issue in the supreme court, how is it related to AGR dues and how is it different?

Friends, I will be able to mention three different companies. RCom, Aircel and Articlecon. If I mention AGR dues on each then R. Comm has Rs 25000 Cr of AGR Dues. Articlecon has Rs 1300 Cr of AGR Dues, Aircel has dues of Rs 15000 Cr. Now you would possibly be thinking why am I shifting the main target from the three main companies and that specialize in these cause the present issue within the supreme court is said to the cause at the start of the article.

 I discussed out of 15 companies, 10 to 11 companies are almost within the state of closing down. When an organization is going to go insolvent or close, it sells off all the assets and began to repay its debtors. Thus the supreme court is of the thought that if these three companies close with Rs 25000 Cr

Rs 1300 Cr, and Rs 15000 Cr. Who can pay off their debt?

If these Telecom companies liquidate & sell all its assets, they're going to never be ready to repay the govt. That's why the talk goes on within the supreme court that these 3 companies with AGR dues, to whom they sold their spectrum, will those companies need to pay AGR dues or not? means RComm sold its spectrum sometimes back to Reliance Industries, Aircel and Articlecon sold its the spectrum of various bandwidth to Airtel. If these companies liquidate, 

Who can pay off its AGR dues? How they will going to recover the AGR dues from the Telecom companies which are going to bankrupt very soon.

If these companies come under the liability to pay off the AGR dues, if RComm's liability will need to pay off by Reliance Industry, if Aircel and Articlecon's dues will need to pay by Airtel, thus these two giants of the telecom sector can face an enormous debt. But we'll only know within the future if the dues will need to be paid off by the companies or it'll get saved from paying off this liability, cause tons of debate goes on regarding this in Supreme Court. it's being said that the Supreme Court has already reserved this judgment and it'll be called at a couple of days.

We have learned from the observation that just in case these Telecom companies aren't ready to pay off the liability then their spectrum are going to be closed down. The Telecom companies which bought the spectrum will need to pay., If not, then the spectrum would be closed down. Till the time the judgment is out we should always not discuss its absolute result. These are just speculations. aside from this many companies spoke in their own favour. Like Airtel said that they didn't receive any requirement from DOT to pay up the AGR dues before spectrum deal. Even Reliance JIO said no requirement was received by them when they did a deal on the spectrum that they'll have to be compelled to repay any dues associated with AGR.

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When they bought it and there was no requirement then why do they need to pay now? These are debatable and this case remains with Supreme Court. the particular result is going to be known after the judgment, whether companies will need to pay these dues or these companies will save themselves from paying it. Telecom Companies are requesting time to repay in order that they're going to get the bandwidth to expand their business and thereupon revenue, they will even repay this loan.

Supreme Court has asked the govt. to form an idea ready on how they will going to recover the AGR dues from the Telecom companies which are going to bankrupt very soon. Supreme court is extremely stringent within these matters and has said that Govt will need to recover these dues but its actual judgment will only be known in the future.

OUR POINT OF VIEW FOR THESE TELECOM COMPANIES

Friends, I might wish to suggest to you all to not do any speculations. I'm not stopping you from investing or I am not asking you to buy certain Telecom companies but if you propose to take a position in telecom in the future, then research the companies and analyze it, learn their expansion plan and their going concern, after knowing this stuff decide whether you would like to take a position or not.

These are the liabilities which may be pretty big and if liabilities do not have to be paid, it are often excellent news but it won't be right to take a position at now.  If you're getting to invest here, choose an honest company, understand its business model and invest certain an extended horizon. If you are feeling that I will be able to earn tons of cash after 5 days from investing now, this strategy is going to be wrong.

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By following this strategy, your chances of creating losses will increase. If you've got already invested in these companies. it's extremely important for you to follow this news, you ought to know the continued issues in your invested company and the way can these companies perform with these issues.

Keep this stuff in mind and do an honest investment. Invest for future, follow the news, you ought to the implications of that news on you as an investor and on the Telecom company.

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