Centre's relief could help Vodafone Idea save $1 billion in annual outgo

A combination of reduced interest on deferred spectrum liability and an interest waiver on its adjusted gross revenue (AGR) dues can garner nearly $1 billion in annual relief for struggling Vodafone Idea (Vi) and boost its chances of survival, BNP Paribas said in a client note.

It added that the loss-making telecom JV between UK’s Vodafone Plc and India’s Aditya Birla Group would be able to further cut its current ₹1.9 lakh crore debt burden if the government allows it to surrender unused spectrum in non-priority markets, moves that would help the telco reduce the net present value (NPV) of its overall liabilities and improve future cash flows.

Ratings agency, ICRA warned that if Vi doesn’t survive and the sector becomes a duopoly, the towers industry would bear the brunt by way of heavy tenancy losses, resulting in sharp decline in revenue and operating income.

“A 2% rate cut on Vi’s deferred spectrum liability would lower its annual interest burden by ₹2,100 crore, and if the government foregoes the interest (component) on the telco’s AGR dues, it can result in an additional ₹4,000-4,500 crore of annual relief,” BNP Paribas senior telecom analyst Kunal Vora said.

Vora said a “multi-pronged approach” towards debt reduction, backed by a strong tariff hike that boosts Vi’s average revenue per user (ARPU) by ₹30 from current levels could put the company on a recovery path. Vi’s ARPU – a key performance metric -- fell 3% sequentially to ₹104 in June quarter, FY22. BNP estimates a ₹30 rise in Vi’s ARPU can result in ₹9,000 crore annual additional revenue.

Analysts, though, said Vi’s financial challenges remain, given its cash flows are rapidly deteriorating. A potential collapse, they said, would hit all Vi stakeholders, though the tower firms would be the hardest hit.

“If Vi collapses, tower companies will lose around 1,80,000 tenancies that the company occupies and only 40-50% of tenancies (are likely) to be regained by tower firms, while the balance would be lost owing to redundancies and network realignment,” said Sabyasachi Majumdar, group head & senior VP, ICRA.