Vodafone Idea may struggle to sustain beyond 2 years, despite likely AGR relief: Analysts

New Delhi: Telecom operator Vodafone Idea may still struggle to sustain its business in the long term given its weak cash flows, even if the Supreme Court agrees to the government proposal to allow a staggered payment of the adjusted gross revenue (AGR) dues over 20 years or less, analysts say.

“While VIL may be able to sustain over next two years with the spectrum and AGR payment deferment, our cash flow analysis suggests that business viability is under cloud even at Rs 200 ARPU (Average Revenue Per User) and subscriber base of 280 million once the deferred spectrum payment resumes in FY23,” brokerage firm Credit Suisse said in a report on Tuesday.

The telco’s shares lost 15.36% to close at Rs 4.85 a piece on BSE Tuesday. The exchange's benchmark index, the Sensex, lost 2.58% or 810.98 points.



The Department of Telecommunications (DoT), had on Monday sought the Supreme Court’s permission to allow telcos to spread out balance AGR dues over a period which may go up to 20 years at a discounted rate of 8% to protect net-present value.

“Considering the balance liability of Rs 15000 crores based on VIL’s self-assessment, the average annual instalment with 8% fixed interest amounts to Rs 780 crores. For a company which is making annual cash loss of Rs 10,000 crores, coughing up this amount is a remote possibility,” said an analyst who did not wish to be quoted.

As per HSBC Global Research estimates, VIL will require an ARPU increase of 5% (from Rs 122 in Q4FY20) to be able to generate incremental cash for annual instalments, based on its self-assessment.

Emkay Global also believes an annual payout of Rs 750 crores may not be a challenge in the near term for the telco.

“Real pain will begin in FY23 when VIL will have to shell out Rs 12,000 crore as deferred spectrum payments which would drive back the company to reduced cashflows again and it lacks clarity on total penalty amount and quantum of staggered payout,” said an analyst at Emkay Global Financial Services.

Credit Suisse estimates VIL would need ARPU levels of Rs 230 to achieve cash flow breakeven post FY23.

The government is also considering a broad package for the competition-stricken and debt-ridden industry, including providing sovereign guarantee of 15% of AGR dues if an operator were to approach a public-sector bank (PSB) for loan.

“The staggered payment plan along with 15% sovereign guarantee provision for the telcos to raise debt from PSBs will allow Vodafone Idea to survive but it is still a discomfort considering the stretch on its balance sheet,” said Rohan Dhamija, partner & head of India & Middle East at Analysys Mason.

Besides this, the discrepancy in the DoT’s and telcos’ AGR estimate will take 9-12 months to get resolved and could potentially result in another legal battle if both parties maintain a recalcitrant attitude, Credit Suisse said.

Vodafone Idea till date has paid the principal portion of Rs 6,854 crore out of total statutory dues of Rs 21,633 crore, as per its own assessment. Whereas, according to DoT math, the company overall owes Rs 58,254 crore. The DoT had said that the relief measure will be applicable to reconciled figures between two parties.

“A 20% tariff hike from current rates along with TRAI setting a price floor is crucial at this juncture for Vodafone Idea to run business sustainably. It also depends on how it runs its operations and contains its customer churn,” Dhamija said.