Vodafone shares: AGR relief gives breathing room, challenges still persist; check targets
Vodafone Idea shares: Telecom player Vodafone Idea Ltd has received major relief on its adjusted gross revenue (AGR) dues, with repayments stretched till 2041, significantly easing near-term cash flow pressure and reducing debt in net present value terms. They see the burden getting eased, but some headwinds around market share and capex still persist.
However, brokerage firms still have a mixed view on the stock as they believe that move provides the telco crucial breathing space to pursue a long-awaited fund raise and accelerate network investments. However, sizable spectrum liabilities, execution risks, and market share challenges continue to temper optimism.
The dues shall now be payable as a maximum of Rs 124 crore to be paid annually over next six years - from March 2026 to March 2031; Rs 100 crore to be paid annually over four years- from March 2032E to March 2035E; remaining AGR dues to be paid in six equal annual instalments- from March 2036E to March 41E.
This AGR relief implies Rs 53,500 crore of debt reduction for Vodafone Idea in NPV terms. The DoT would constitute a committee to reassess the above mentioned AGR dues, and its decision shall be final. It would be key to watch if this leads to VIL securing its long-pending Rs 25,000 crore debt fund-raise or lenders wait for clarity on DoT-formed committee’s reassessment of AGR dues, said JM Financial.
Rs 25,000 debt-raise is critical for VIL to execute its Rs 50,000–55,000 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. VIL’s tower roll-out is key for Indus as well since it could contribute to healthy tenancy additions in the near-to-medium term, said JM.
"Significant relief on AGR dues signals the continuation of governments steadfast support for maintaining a 3+1 market construct in the Indian telecom industry. With AGR repayments no longer a concern (at least till FY35), we believe Vi’s long-pending debt raise should close soon, which should help Vi ramp up its capex plans over the next few years," said Motilal Oswal.
AGR relief and potential debt raise are undoubtedly positive developments for VIL. However, it still owes Rs 1.23 lakh crore to the government toward deferred spectrum liabilities, and obtaining a similar relief on the same would not be straightforward. Despite a potential increase in capex, regaining/retaining market share would remain a tall ask, it said.
Shares of Vodafone Idea Ltd dropped more than 2.45 per cent to Rs 11.10 on Monday from day's high at Rs 11.38. The total market capitalization of the company slipped below Rs 1.2 lakh crore. The stock has cracked more than 13 per cent from its 52-week high at Rs 12.80 hit two weeks ago.
"We understand Vodafone is still liable to pay spectrum dues of Rs 2,500 crore in FY26E, Rs 7,000 crore in FY27E, Rs 15,000 crore in FY28E, Rs 27,000 crore over FY29–32E. It needs ARPU to rise to Rs 340 by FY29E to meet cash outflows from internal accruals," it added. JM has an 'add' rating on VIL with a target price of Rs 12.
Motilal Oswal's FY27-28 earnings increased sharply, primarily due to lower interest costs. Its target price remains unchanged at Rs 11. "We remain Neutral on Vi as we believe several other relief measures, such as the rationalization of spectrum dues, debt fund raise, tariff hikes, and reduction in competitive intensity on subscriber acquisitions, are required for Vi’s revival.," it said.
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