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    Voda Idea, Airtel losses may widen on provisioning

    Synopsis

    Vodafone Idea and Airtel may need to cough up Rs 39,313 cr and Rs 41,507 cr, respectively.

    An accountant at a leading global consulting firm backed the view, saying, “The accounting standards framework is very clear that all crystallised liabilities must be provided for in full.”

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    Kolkata: Vodafone Idea and Bharti Airtel may widen their losses sharply in the September quarter if they make provisions for the full quantum of their unpaid statutory dues following the top court’s verdict on adjusted gross revenue, experts said.

    In the absence of immediate relief from the government, Vodafone Idea and Airtel may need to cough up Rs 39,313 crore and Rs 41,507 crore, respectively, towards licence fee and spectrum usage charges, with penalties and interest. The figures, though, are being recalculated by the telecom department.

    “If there are crystallised statutory liabilities payable in three months as per the Supreme Court order, Airtel and Vodafone Idea would require to make a provision for these unpaid dues in full in their P&L account in the fiscal second quarter earnings numbers, which could lead to a sharp increase in their respective losses,” Uday Ved, partner at KNAV, a global tax and audit advisory firm, told ET.

    An accountant at a leading global consulting firm backed the view, saying, “The accounting standards framework is very clear that all crystallised liabilities must be provided for in full.”

    Vodafone Idea and Airtel are scheduled to report their September quarter numbers on November 14. They are the worst-hit by the top court verdict that backed the government’s broader AGR definition to include revenue from non-core items.

    Airtel shares fell 0.9 per cent to Rs 368.50 at the close on the BSE on Wednesday, while the Vodafone Idea stock declined 7.5 per cent to Rs 3.70.

    Brokerage HSBC said there is a rising possibility of “at least a portion of Vodafone Group’s euro 1.1 billion (Rs 8,400 crore) indemnity provision being drawn on” given the condition of its Indian JV, Vodafone Idea.

    Vodafone Group chief executive Nick Read said on Tuesday that the JV is in “critical” state following the AGR verdict and the unit’s “carrying value” had been reduced to zero. He added that the UK co-parent won’t infuse any further equity into VIL.

    Some analysts said the net worth of VIL and Airtel could be eroded by almost 50 per cent and 45 per cent, respectively, if the entire quantum of unpaid statutory dues is provisioned.

    VIL and Airtel’s net worth - currently estimated at Rs 79,726 crore and Rs 91,375 crore based on balance sheet data - could stand eroded to Rs 40,413 crore and Rs 49,868 crore, respectively, if the current dues hold.

    “Their net debt would see a corresponding increase by a similar sum, as in the amount provisioned,” said Rajiv Sharma, head of research at SBICap Securities.

    This, he said, is because accounting is guided by rules of conservatism, which means the entire sum, including AGR-linked licence fee and spectrum usage charges need to be provisioned… anything less would be a subjective interpretation by the telcos or their understanding of penalties and interest on the penalties.

    At press time, Airtel and Vodafone Idea did not reply to ET’s queries.

    Nitin Soni, director (corporates) at global rating company Fitch, said the two telcos may not immediately need to provision the entire sum.

    Bharti and Vodafone Idea may provide for some of the unpaid dues in the second quarter results “since the amount is still uncertain, given that the government may provide some relief,” Soni said.
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