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Vodafone Idea’s future looks bleaker after SC’s AGR ruling July 27 2021Vodafone Idea, Vodafone Idea shares, Supreme Court

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Vodafone Idea’s future looks bleaker after SC’s AGR ruling

Investors in Vodafone Idea Ltd (VIL) were hoping against hope that the Supreme Court (SC) would rule in favour of the company on the issue of payments linked to the AGR case. The SC denied a petition lodged by telecom companies such as Bharti Airtel Ltd and Vodafone Idea, which requested a direction from the court to correct alleged flaws in the calculation of AGR.

VIL's stock dropped nearly 9% on the NSE on Friday as a result of this news. The decision is a major setback for cash-strapped VIL, which owes the government approximately 61,000 crore in AGR dues. It is expected that the Indian telecom business would become a duopoly unless the company is able to raise funds.

 The verdict is unfavourable to Vodafone Idea on a sentimental level. "Any favourable outcome on this subject may have given the company much-needed breathing room," said an analyst at a domestic brokerage who asked to remain anonymous. He further said that unless Vodafone Idea can rise about 25,000-30,000 crore, which must be followed by a pricing hike, the company's prospects remain bleak. "We don't expect either of them to happen anytime soon," he said, "so we're keeping our negative perspective on the stock."

Vodafone Idea's net debt was 1.8 trillion in FY21, with a cash balance of about 350 crore. The fact that net debt has risen indicates that the company is still burning cash. In order to service its debt in FY22E/FY23E, VIL will need to double its ARPU, assuming no further subscriber churn, the acronym ARPU stands for average revenue per user.

The lack of growth in the retail postpaid or prepaid segments suggests that the company's major focus remains on subscriber market share.

The Supreme Court granted telecom companies 10 years to pay their AGR debts to the government in September of last year. Every year, the telecom providers were required to pay a portion of the dues amounting to about 10% of the total.

On March 31, 2021, companies were obliged to pay their first installment. However, a disagreement has arisen about the department of telecom's AGR calculation. Meanwhile, Vodafone Idea has written to the government, requesting that the government either extend the moratorium on spectrum payments or create a floor-price mechanism to address the industry's pricing difficulties.

Analysts believe it will be tough to get more bullish on the stock unless its liquidity issues are fixed.

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