Brokerages on Vodafone Idea: The Supreme Court’s dismissal of curative pleas filed by telecom companies, with regards to the computation of adjusted gross revenue (AGR), has invited mixed views from brokerages.
“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 Thursday, the Supreme Court rejected curative petitions filed by telcos, seeking a review of its 2019 judgment on AGR, which allowed the Department of Telecommunications (DoT) to seek all non-telecom revenue dues as part of the overall AGR payment.
On its part, Vodafone Idea said its ‘self-assessed’ AGR due stood at Rs 21,533 crore as against the DoT’s estimate of Rs 58,300 crore. Thus far, the debt-laden company has paid Rs 7,900 crore.
In the April-June quarter (Q1) of the current financial year 2024-25 (FY25), Vodafone Idea set aside Rs 70,300 crore as AGR dues and Rs 139,200 crore for spectrum payment. Its total due at the end of the quarter was Rs 2.1 trillion.
Analysts believe if Vodafone Idea has to wade through the trouble, it may need government’s support, in terms of debt to equity conversion and/or extended moratorium, and aggressive tariff hikes.
Road ahead for Vodafone Idea
The Centre had provided a moratorium to all telecom players for four years, which ends in September 2025. Post this, Vodafone Idea shall need to make payments of 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 partly meet the government dues.
If VIL is able to convert dues worth Rs 12,000 crore into equity, it may be able to manage to repay the remaining Rs 17,000 crore through its Ebitda.
“In FY27, VIL is estimated to generate Rs 26,100-crore Ebitda. Clearing dues is possible if VIL is able to 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 caution.
Even with the recent tariff hikes, Vodafone Idea appears to be losing market share to BSNL, noted analysts at Nuvama Institutional Equities.
With limited visibility on 5G rollout, it would be difficult for VIL to retain its subscriber base, thereby affecting Arpu (average revenue per user) growth, in turn hurting cash, they 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 Aditya Suresh and Baiju Joshi of Macquarie in their note.
Vodafone Idea share price target
Amid these concerns, shares of Vodafone Idea plunged 19.7 per cent on Thursday, and another 5.6 per cent in Friday’s intraday trade. By comparison, the benchmark BSE Sensex surged over 1 per cent (975 points) intraday to hit a record high of 84,160.
Analysts’ share price targets for Vodafone Idea vary from Rs 2.5 to Rs 15. The lowest price target has been given by Goldman Sachs, with a ‘Sell’ rating, as it sees 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, in recent weeks, offers an opportunity to buy the stock,” it said.
UBS, too, has maintained its ‘Buy’ rating on the stock. “While SC’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 has ‘Underperform’ rating; CLSA has ‘Underperform’ rating (target: Rs 10); Nuvama Institutional Equities has ‘Hold’ (target: Rs 11.5); and JM Financial has ‘Sell’ (target: Rs 10).
First Published: Sep 20 2024 | 11:07 AM IST
