Positive Event, May Clear Overhang around Sustainability: Brokerages on Voda Idea's AGR Dues Relief

The apex court allowing the Centre to reconsider and reconcile Vodafone Idea's ₹ 5,606 crore AGR dues for FY17 offers the government a space to formulate a plan for the telco's sustainability, according to various brokerages.

Citi, in its report, termed the Monday's developments in the Supreme Court as one that could have significant positive ramifications for Vodafone Idea.

Citi believes that AGR relief could be in the form of a partial waiver of dues or extension of timeline for payment of the dues, even a combination of the two.

"...today's development should, in our view, help clear the overhang around VI's sustainability," Citi said.

With a large lumpsum amount towards AGR dues coming up for payment by VIL to the government in March 2026, Citi believes "that relief from the government should be forthcoming well ahead of this deadline i.e., in the coming weeks and months".

Clarity on relief towards AGR dues from the government has been a key challenge and major obstacle for Vodafone Idea in completing its ₹ 25,000 crore planned bank funding.

"We reckon AGR relief by the government could provide much-needed confidence to banks to extend credit to the company. This, in turn, would alleviate concerns about the sustainability of VI's network capex, which have arisen due to recent delays in securing bank debt," as per Citi.

Moreover, with the share price now hovering around the critical Rs 10/share mark, AGR relief could even pave the way for another equity raise down the road, it observed.

"A successful equity raise would dilute the government's stake below the current 49 %, providing the government with the option of converting additional dues into equity. AGR relief could therefore, in our view, trigger a series of positive events for VI, which, in turn, could ultimately provide necessary comfort to Indus's management to reinstate dividends," Citi said.

Emkay expects the government to take a holistic view on the solvency of the company and, accordingly, structure the relief.

"With this, the GoI will now have enough wiggle room to create a plan for VI's long-term sustainability," it said.

But although SC's permission improves VIL's chances of revival, Emkay said in view the high leverage, high valuations, and lack of clarity on government stance on spectrum debt, it retains a 'sell' on VIL stocks.

"We note that leverage for VI remains higher even without AGR dues, and the government will need to consider plans toward reducing the spectrum debt as well," Emkay estimated.

As the decision is specifically pertaining to Vodafone Idea, considering the peculiar conditions of the company, it also sees low chance of the government reversing the current outstanding ₹ 37,100 crore AGR dues of Bharti Airtel.

The Supreme Court on Monday permitted the Centre to reconsider and reconcile Vodafone Idea's pending adjusted gross revenue (AGR) dues of ₹ 5,606 crore for the financial year 2016-17, observing that the issue falls within the policy domain of the government.

In a BSE filing, VIL said: "In a positive development, the Hon'ble Supreme Court has today permitted the Government to consider the grievances of Vodafone Idea Limited on the issues relating to AGR. We look forward to working closely with the Department of Telecommunications to resolve this matter in the interests of our nearly 200 million subscribers".

This is an impetus to the Digital India vision and ambition of the Prime Minister, the telco added.

Adjusted gross revenue (AGR) is the income figure used to calculate the licence fees and spectrum charges that telecom companies must pay to the government.