AGR relief boosts Vodafone Idea outlook; analysts flag spectrum dues risk

Vodafone Idea shares fell 2% despite 10-year AGR moratorium. Analysts cite spectrum dues, funding risks, and limited upside despite cash-flow relief

India’s third largest carrier Vodafone Idea (Vi) may end up getting relief of more than ₹54,000 crore on its adjusted gross revenue (AGR) dues, said Motilal Oswal, adding that a reassessment in dues would improve the quantum of the relief.

 

“Based on the current AGR amount (₹87,700 crore) and the announced relief measures, we compute the actual AGR relief from GoI at ₹54,200 crore (or about ₹5/share for Vi), about 62 per cent cut in AGR dues on an NPV (net present value) basis, at an 8 per cent interest rate,” said analysts at the brokerage said in a note.

 

“Any reassessment on the base AGR dues would lead to an even higher relief for Vi,” it added.

 

According to sources, the government has begun evaluation of the AGR dues at all circle levels following its communication to the number three carrier.

 

With no interest being levied on the dues that are now frozen by the department of telecommunications (DoT), the telco would be required to give an undertaking that the dues reassessed by the government would be final and the company would be obligated to pay those dues.

 

The government has said in its communication to the Aditya Birla group telecom arm that it has to pay a maximum of ₹124 crore annually for six years starting March 2026 and then ₹100 crore annually for four years starting March 2032. Payments of the reassessed and finalised dues will begin from March 2036 on an annual basis, till March 2041.

 

Analysts at Motilal Oswal however pointed to limited options of relief by the government on ₹1.2 trillion dues that VI owes to the government from spectrum bought in previous auctions. With peers having repaid the bulk of these dues, options for the government to provide similar relief -- interest waiver and or a further timeline extension -- are limited, they added. Vi will have to pay ₹6,200 crore in FY27, ₹16,600 crore in FY28 and ₹27,000 crore each year from FY29 to FY32.

 

“An equity fund raise for Vi could pave the way for GoI to further convert Vi’s spectrum dues into equity. However, this would require a large fundraise with potential large dilution post the fund raise,” they noted.

 

Analysts at Axis Capital added that the AGR relief should close VIL’s long-awaited debt-raise, thereby aiding capex spends, narrowing network gap with peers and in turn arresting its subscriber churn. Vi has invested ₹10,000 crore in FY25 on capex, significantly lower than Bharti Airtel and Reliance Jio that have spent ₹30,000 crore and ₹46000 crore on 5G and broadband, on a three-year average.

 

“Starting 2029, there will be spectrum auctions, and its net debt could move up depending upon how much it re-acquires. It is likely that it does not re-acquire all its current holdings, as its market share is now lower vs when the spectrum was initially acquired,” said analysts at the brokerage.

 

Analysts noted that the ₹25,000 crore debt-raise was critical for Vi to execute its ₹50,000 crore - ₹ 55,000 crore capex plan to improve its 4G coverage/capacity and expand 5G coverage, so as to arrest subscriber decline and start growing in line with industry.

 

“Furthermore, VIL needs ARPU to rise to ₹340 by FY29 to meet cash outflows from internal accruals,” JM Financial said.