The ₹40,000 cr question: Will govt take stake in Bharti Airtel for AGR dues?

The DIPAM, which is assessing the proposal, is weighing the implications of a potential approval, especially as Airtel has demonstrated strong financial performance and its stock, too, has been on a tear over the past five years, the first official cited above said on the condition of anonymity. 

The second official said that the Centre is also weighing the broader implications of setting a precedent to other financially sound corporations–even beyond telecom–that they can convert dues into government equity.

Last month, the country’s second-largest telecom operator by market share urged the Department of Telecommunications (DoT) to convert its AGR dues into equity, Mint had reported on 24 April, citing sources. The company is yet to officially confirm the same. The conversion, if it happens, would give the government around 3-4% stake in Airtel, Mint had reported on 24 April.

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“One of the key things under discussion is whether it would be right to convert the dues at such a high valuation given Airtel’s stock price has significantly surged in the last five years,” the first official said.

In the past five years, Bharti Airtel’s stock has shot up from ₹444.95 on 1 January 2020 to touch a lifetime high of ₹1,904.20 on 21 April 2025, data from Investing.com showed. At Monday’s closing share price of ₹1,865.45, Airtel’s market capitalization was more than ₹11.3 trillion.

The company’s price-to-earnings (P/E) multiple was at around 45, according to analysts. This indicates that investors are willing to pay ₹45 for every ₹1 of the company’s earnings—a sign of strong growth expectations or a potentially high valuation relative to peers.

The request from Airtel comes after the government recently converted ₹36,950 crore worth of spectrum dues of Vodafone Idea (Vi) into equity under the telecom relief package of September 2021. This was the second equity conversion by the government in Vi after it converted interest dues worth ₹16,133 crore into equity in 2023.

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The second official cited earlier said that the equity conversion for Vi, which was completed on 8 April, was aimed at ensuring the sector’s sustainability. “Airtel, by contrast, has demonstrated strong revenue growth and has been consistently meeting its obligations,” this official said. “The government is cautious not to signal that any outstanding liability could automatically be converted into equity.” 

Queries emailed to DoT and DIPAM on Monday did not elicit any response till the press time. 

Going strong

In a note dated 7 April, brokerage Morgan Stanley has maintained an equal weight (EW) stance on Bharti Airtel. “…strong outperformance in the last 1 year, high valuations and tariff increase already baked in by consensus estimates”, the brokerage said, adding that the stock has already outperformed (up 9% year-to-date) vs Sensex (-) 4% and even in the past one year, it is up 44% vs Sensex 1%.

“Competition wise, Airtel is doing well,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a proxy advisory firm. “If the government decides to convert some dues of the company into equity, it would not set a right precedent as companies from other sectors would start asking for the same treatment going forward.” 

“Bharti Airtel appears overvalued based on traditional valuation metrics, the premium is arguably justified given the positive long-term outlook for the telecom sector,” said Prashanth Tapse, senior vice president research at Mehta Equities.

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Tapse, however, said the government should not convert Airtel’s dues into equity at this valuation and not even at a lower valuation. “The government is not in the business of owning equity stakes, especially in private companies. IDEA (Vodafone Idea) was a different case primarily due to systemic risk concerns and the need to maintain healthy competition in the telecom sector preventing a duopoly,” he said.

The background

As part of the 2021 relief package, the government gave telecom operators a moratorium/deferment of up to four years in annual payments of dues arising out of the AGR judgement by the Supreme Court. The operators also had the option to convert the due amount pertaining to the deferred payment by way of equity at the end of the moratorium/deferment period, at the option of the government.

Following the Supreme Court’s 2019 verdict on AGR, telecom operators were hit with massive retrospective dues worth ₹1.47 trillion. In 2021, the Court had also dismissed a plea by telecom operators seeking correction of errors in the demand of AGR dues. Later, the government introduced a relief package in 2021, offering a four-year moratorium on these payments to alleviate financial pressure on the sector. The moratorium, however, is set to expire in September this year.

In the October-December quarter, Airtel’s free cash flow was at ₹19,896 crore, up 88% year-on-year (y-o-y). The company’s revenue from operations grew 19% y-o-y to ₹45,129 crore and net profit was at ₹14,781 crore, up 505% y-o-y. 

Notably, Airtel has paid spectrum liabilities of ₹66,665 crore before they were due. Currently, it has ₹52,000 crore dues remaining, which are related to the 2021 and 2022 spectrum auctions, and outside the purview of the 2021 relief package.

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