MUMBAI: The Supreme Court’s Adjusted Gross Income (AGR) ruling has dealt Vodafone Idea Ltd a massive blow, although the troubled telco is expected to survive. At least that appears to be the stock market’s verdict on the court’s ruling. Vodafone Idea shares are down about 15% compared to where they were just before the ruling, but are about three times higher compared to lows of ₹3 per share a few months ago.
While the telco may survive for now, its journey will be even more painful.
The Supreme Court has asked telecommunications companies to pay 10% of AGR fees in advance and has established a 10-year payment term for the rest of the amount. While details on the down payment and applicable interest rate are expected, it is clear that Vodafone Idea will need a healthy dose of capital injection as well as rate increases to continue as a going concern. And on top of this, it will need some help from the government in terms of further deferral of spectrum obligations, analysts say.
“The clock has started ticking for the company in terms of raising the necessary capital funds it needs to survive. There are only a few months left until Fiscal Year 22 begins, when the big payments will be due. The company is now out of cash from the to talk about, “says an analyst for a national institutional brokerage requesting anonymity.
The additional annual expenditure on account of the AGR quotas is estimated at around ₹7,500 crore.
“Vodafone Idea will have to provide service ₹7,000-24,000 crore cash outflows during FY22-23, even after we ignored non-spectrum debt maturities and assumed zero capex, “analysts at Jefferies India Pvt. Ltd said in a note.
Note that the company currently has an annualized Ebitda of ₹6,100 crore, which is expected to increase to ₹Rs 10,000 crore after certain additional cost synergies are established. This is well below what is needed for fees. “Given that the last rate hike did not occur in months, it may be time for another rate hike. In any case, there is no way Vodafone Idea will survive without significant rate hikes,” says the analyst quoted above.
Jefferies analysts say rates must increase 27% for Vodafone Idea to offset the impact of AGR fees. “Given that after ~ 30% rate increases in December 19, Vodafone Idea’s Ebitda has grown by 20%, it may need additional support from the government in the form of an additional 2-year moratorium on liabilities from deferred spectrum to remain solvent beyond Fiscal Year 23. “
While the company could raise some funds through the sale of its fiber assets, as well as through refunds and fees owed to it, the fact is that it will not yet have the funds necessary to make the necessary investments to survive in the competitive Indian telecommunications market. .
Bharti Airtel Ltd, on the other hand, is in a much better position and its market share gains are expected to continue, thanks to the problems of Vodafone Idea. Its shares are up more than 7% since AGR’s verdict.
Vodafone Idea lost a staggering 5.8 percentage points in revenue market share in the June quarter, data from the Telecommunications Regulatory Authority of India shows.
The company’s actions will now determine whether it plans to simply survive, which will mean a continued erosion in market share, or to strike back with a major infusion of funds.
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