Vodafone Idea at Rs 2.5 or Rs 15? Analysts divided after SC’s AGR verdict: Vodafone Idea share price
Source: Business Standard
The Supreme Court’s dismissal of curative pleas filed by telecom companies, including Vodafone Idea, in the computation of adjusted gross revenue (AGR) case has evoked mixed views from brokerages.
While the apex court’s move is sentimentally negative, analysts believe a clear verdict removes a major overhang from the stock and provides visibility for the road ahead for the cash-strained telco.
“Despite its large debt burden (but manageable with government support), Vodafone Idea will be able to steadily repair and rebuild its business and partake in the robust outlook for the Indian telecom industry in the coming years,” said Hemang Khanna, vice president – research analyst, Nomura.
On its part, Vodafone Idea said its ‘self-assessed’ AGR dues stood at Rs 21,533 crore as against the DoT’s estimate of Rs 58,300 crore. The debt-laden company has paid Rs 7,900 crore so far.
In the April-June quarter (Q1) of the current financial year (FY25), Vodafone Idea set aside Rs 70,300 crore as AGR dues and Rs 139,200 crore for spectrum payment. Its total dues at the end of the quarter were Rs 2.1 trillion.
Analysts believe if Vodafone Idea has to wade through the trouble, it may need the government’s support, in terms of the debt to equity conversion and/or extended moratorium, along with aggressive tariff hikes.
Road ahead
Once the Centre’s ongoing moratorium ends in September 2025, Vodafone Idea will need to pay Rs 29,000 crore in March 2026, and Rs 43,000 crore in March 2027.
According to Nomura estimates, Vodafone Idea could generate Ebitda (earnings before interest, tax, depreciation, and amortisation) of Rs 22,400 crore in FY26, which could be used to meet the government dues partly.
If Vodafone Idea converts dues worth Rs 12,000 crore into equity, it may be able to repay the remaining Rs 17,000 crore through its Ebitda.
“In FY27, Vodafone Idea is estimated to generate Rs 26,100 crore Ebitda. Clearing dues is possible if Vodafone Idea can convert Rs 17,000 crore of dues to equity and pay the remaining Rs 26,000 crore through its Ebitda,” the brokerage said.
Higher Ebitda generation, however, would need aggressive tariff hikes which may hit the company’s market share, analysts cautioned.
Data released by the Telecom Regulatory Authority of India (Trai) shows that Vodafone Idea lost 1.41 million users in July. Its rivals Jio lost 0.7 million and Bharti Airtel 1.69 million, while BSNL added 2.9 million in a month when others hiked tariffs.
With limited visibility on the 5G rollout, it would be difficult for Vodafone Idea to retain its subscriber base, thereby affecting Arpu (average revenue per user) growth and hurting cash flows, analysts noted.
“Tariff outlook has been improving, but without AGR concessions, it would take at least 25-30 years (assuming 15 per cent Arpu CAGR) for Vodafone Idea to organically pay back its obligations,” highlighted analysts at Macquarie.
Investment strategy
Amid these concerns, shares of VIL plunged 19.7 per cent on Thursday, and another 5.6 per cent in Friday’s intraday trade. By close, however, the stock recouped losses to end 0.96 per cent up at Rs 10.48 per share on the BSE as against the benchmark BSE Sensex’s 1,359.6-point (1.6 per cent) surge.
Analysts’ share price targets for Vodafone Idea vary from Rs 2.5 to Rs 15. The lowest price target by Goldman Sachs, with a ‘sell’ rating, assumes no government support/relief in AGR liabilities.
Nomura, on the contrary, has upgraded the stock to ‘buy’ with a Rs 15 target. “We believe the worst has passed following the conclusion of the overhang, and the sharp decline in stock price offers an opportunity to buy,” it said.
UBS also has maintained its ‘buy’ rating on the stock. “While the Supreme Court’s dismissal of the petition reduces the probability of an outright waiver by the Centre, we do not rule out an equity conversion or deferral,” the brokerage said.
Among others, Macquarie and CLSA have an ‘underperform’ rating with a target of Rs 10 each. Nuvama Institutional Equities has a ‘hold’ recommendation with a target of Rs 11.5, and JM Financial has a ‘sell’ rating with a target of Rs 10.
First Published: Sep 20 2024 | 11:07 AM IST
