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.
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
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.