Shares of most telecom firms were trailing on Friday after the Indian Supreme Court stayed its ruling on adjusted gross revenue (AGR) dues.

What Happened: The Supreme Court dismissed a series of petitions from telecom companies, including Vodafone Idea and Bharti Airtel, regarding the recalculation of AGR on Thursday. Last year, Airtel and Vodafone had asked the top court to hear their curative petitions to address alleged arithmetic errors by the Department of Telecommunications (DoT) in calculating the AGR.

The Supreme Court had previously mandated that the telecom companies pay their dues over a 10-year period in a September 2020 ruling. Vodafone sought to correct calculation errors in the AGR demand, proposing to cap penalties at 50% of the shortfall and to adjust the interest rates on penalties to 2% above the State Bank of India's prime lending rate.

Brokerage Views: Global brokerages saw the order as a negative development for some telecom firms but were mostly concerned about debt-ridden Vodafone Idea.

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Goldman Sachs had a “sell” call for both Vodafone Idea and Indus Towers with a target price of ₹2.5 and ₹350 respectively, whereas it recommended a “buy” for Reliance’s Jio and Bharti Airtel with target prices of ₹3,430 and ₹1,700 respectively.

The analysts noted that Vodafone Idea may need to raise tariffs to address its free cash flow gap, while the Supreme Court’s decision could result in larger and more frequent market share gains for Airtel and Jio. It remains uncertain whether the government will provide any relief measures; without them, Vodafone Idea will experience negative free cash flow at least until FY31.

UBS maintained its “buy” call for Vodafone Idea, it had previously highlighted that the firm’s target price could range around ₹12 in the absence of any relief on AGR. The Supreme Court’s dismissal of the petition now diminishes the likelihood of an outright waiver from the government, it said but the brokerage did not rule out the possibility of an equity conversion or deferral. It remains to be seen whether these measures will be net present value (NPV) positive for Vodafone Idea's equity holders, UBS added.

Morgan Stanley said that the decision will further strengthen the competitive positioning of the existing strong players in the market. It sees Bharti Airtel in a sweet spot with continued market share gains.

Macquarie had an “outperform” rating for Bharti Airtel and was “neutral” on Jio. It had an “underperform” call on both Vodafone Idea and Indus Towers. Without the AGR relief it would take Vodafone Idea 25-30 years to pay back its dues and is likely to see an extension of payment timelines, the brokerage said.

Price Action: Vodafone Idea’s shares were down 2.31% to ₹10.14, Indus Towers lost 1.85% to trade at ₹382.60 while Bharti Airtel was trading flat at ₹1,674.45 on Friday morning.

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