Vodafone Idea: Analysts Predict A Potential 46% Relief On AGR Dues On SC Ruling, Brokerages Bullish

Vodafone Idea's (Vi) analysts estimate that the telecom giant's adjusted gross revenue (AGR) dues may decline by nearly 46% to around Rs 38,400 crore if the Supreme Court grants relief on the company's curative petition. This potential relief is expected to alleviate some of the severe financial pressures on the beleaguered telecom operator.

The AGR issue has been a longstanding thorn in the side of Indian telecom operators. AGR, a metric that includes both core and non-core revenues, is used to calculate the license fee and spectrum usage charges owed to the government. The Supreme Court's 2019 ruling mandated that telecom companies must pay their AGR dues, which amounted to hefty sums due to years of accumulated penalties and interest.

In an analyst call following the Q4FY24 results, Vi's CFO Murthy GVAS highlighted the need for corrections in the principal AGR component. Murthy explained that the telco's self-assessment indicated a necessary adjustment of around Rs 6,000 crore in the base amount, which forms the crux of the AGR dues. This reassessment is pivotal as it influences the total demand, which includes interest, penalties, and interest on penalties.

"The total demand from the Department of Telecommunications (DoT) is around Rs 58,000 crore. However, our self-assessment shows that the base amount should be approximately Rs 6,000 crore," Murthy stated. He further explained that if the principal amount is corrected to Rs 6,000 crore, the overall liability could be recalculated to about Rs 24,000 crore based on the 1:4 ratio of the principal to total demand. Adding the accrued interest, this amount would be around Rs 36,000 crore by March 2024.

Murthy also mentioned that Vi is seeking a waiver of the penalty component, which, if granted, could further reduce the total liability. "The last judgment at the tribunal largely favoured the industry, so we believe the penalty could also be waived," he added.

Analysts believe that a nearly 50% reduction in Vi's AGR liability could significantly ease its financial burden. According to Nuvama Institutional Equities, this reduction could cut Vi's upcoming annual payments by about Rs 6,500 crore after the current moratorium on regulatory payments ends in September next year.

However, the relief, while substantial, may not be sufficient. Vi faces a Rs 27,000 crore payout in FY26, and annual payments are projected to surge to around Rs 41,500 crore from FY27 onwards through FY31. These figures show the ongoing financial challenges the company faces despite the potential reduction in AGR dues.

Following the Q4FY24 earnings call, shares of Vodafone Idea saw a marginal increase, ending at Rs 13.25 on the National Stock Exchange (NSE). Over the past year, the stock has surged by 90%, significantly outperforming the Nifty 50 benchmark, which has risen by about 21% in the same period.

Brokerages have responded positively to Vi's improving outlook. Nomura, for instance, upgraded Vodafone Idea Ltd from "reduce" to "neutral," raising the target price to Rs 15 per share, an increase of 13.2% from the previous close. The improved outlook is attributed to the conclusion of its recent fundraising efforts and inline fourth-quarter results.

Nomura highlighted that the worst of the storm appears to have passed for Vi, with a clearer path ahead. The firm updated its valuation to March 2026, applying an EV/EBITDA multiple of 15x. Despite slightly lowering its FY25 EBITDA forecast by 2%, Nomura increased its FY26 EBITDA forecast by 6%, factoring in reduced subscriber losses and a positive outlook on tariff hikes post the Central elections.

Vodafone Idea reported a net loss of Rs 7,674 crore for the quarter ended March 31, 2024, widening from Rs 6,418.9 crore in the same period the previous year. Revenue from operations saw a slight increase to Rs 10,606 crore from Rs 10,531 crore year-on-year. The company's average revenue per user (ARPU) rose marginally to Rs 146 from Rs 145 in the previous quarter and Rs 135 in the corresponding quarter last fiscal, driven by changes in entry-level plans and subscriber upgrades.

Moreover, Vi recorded its highest post-merger quarterly EBITDA of Rs 2,180 crore, marking a 5.4% year-on-year increase. This uptick in EBITDA indicates some operational improvements and a more focused approach towards stabilizing the business.

To address its massive debt and ongoing financial challenges, Vi is exploring converting government dues payable in FY26 and FY27 into equity. This move would further dilute existing shareholders' stakes but could provide much-needed financial breathing room. CEO Akshaya Moondra emphasized that converting instalments under the government's reform package into equity is a viable strategy to manage the company's obligations.

The government previously converted interest accrued on AGR dues into equity, making it the largest shareholder in Vodafone Idea with a 33.3% stake. After the latest equity raise, the government's stake has reduced to nearly 24%, reflecting the ongoing restructuring efforts within the company.

Vodafone Idea stands at a critical juncture, where potential relief from the Supreme Court on AGR dues could mark a turning point for the company. While the estimated reduction in AGR liability offers a glimmer of hope, Vi's long-term financial health will depend on sustained operational improvements, strategic financial management, and favourable regulatory decisions.