Singapore Telecommunications (Singtel) continues to navigate challenges stemming from India's Supreme Court ruling, which dismissed curative petitions from Vodafone Idea and Bharti Airtel concerning the Adjusted Gross Revenue (AGR) dispute. The original demand under this case for Bharti, in which Singtel holds a 29% stake, amounted to INR630 billion (SGD9.75 billion), with Bharti having already settled INR180 billion. This ruling could lead to significant financial implications for the companies involved.

Maybank Stock Broking House predict that should Bharti Airtel opt to pay the remaining AGR dues in ten instalments, its earnings could see a reduction of 8-16% over the fiscal years 2025 to 2027. This translates to a per share negative impact on the net present value (NPV) of AGRs of approximately INR40, reflecting a decline of about 2% based on Bharti's current share price. In contrast, Vodafone Idea is expected to experience a more severe impact, with potential earnings dropping by as much as 67%. Given Vodafone Idea's high leverage, with a projected net debt to EBITDA ratio of 11 times for FY25, its viability as a third major player in the market is at risk. This situation raises the possibility of India consolidating down to just two private mobile operators unless there is a significant improvement in pricing for Vodafone Idea to sustain its operations. These outcomes could present more favourable conditions for Bharti.

For Singtel, the financial impact appears manageable. Should Bharti face an 8-16% reduction in earnings, Singtel's core earnings for FY25-27 may decline by 4-6%. However, the effect on dividends is anticipated to be limited, as Bharti does not pay substantial dividends, thus leaving Singtel's cash flow largely unaffected. Moreover, while Singtel's dividends are linked to its earnings, the company has the flexibility to adjust its payout levels or enhance Variable Rate Debentures (VRD) dividends to offset the losses.

Given these developments, the House maintain a positive outlook for Singtel, retaining their target price at SGD3.45 based on a sum-of-the-parts (SOTP) valuation. The current share price stands at SGD3.38, suggesting a potential upside of 7%. The recommendation to BUY remains in place, indicating confidence in Singtel's resilience amidst the evolving market landscape.

Source: Maybank
Title: Indian Supreme Court rejects telcos AGR recomputation plea