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MUMBAI: The Supreme Court’s ruling on adjusted gross income (AGR) has dealt Vodafone Idea Ltd a huge blow, though the troubled telco continues to be anticipated to outlive. At least that’s what the inventory market’s verdict on the court docket’s ruling seems to be. Vodafone Idea shares are down about 15% in comparison with the place they have been simply ahead of the ruling, but they’re about 3 times larger in comparison with lows of ₹three per share a few months in the past.
While the telco may survive for now, its journey will get much more painful.
The Supreme Court has requested telcos to pay 10% of the AGR dues upfront and has set a 10-year fee timeline for remainder of the quantity. While particulars on the upfront fee and rate of interest relevant are awaited, it’s clear that Vodafone Idea will want a wholesome dose of fairness infusion in addition to tariff hikes to proceed as a going concern. And over and above this, it should want some assist from the federal government when it comes to a additional deferment of spectrum liabilities, say analysts.
“The clock has started ticking for the company in terms of raising requisite equity funds it needs to survive. There are only a few months left for FY22 to commence, when large payments will be due. The company now has no cash to speak of,” says an analyst at a home institutional brokerage requesting anonymity.
The further annual outgo on account of the AGR dues is estimated at round ₹7,500 crore.
“Vodafone Idea will have to service ₹7,000-24,000 crore cash outflows over FY22-23, even after we ignore non-spectrum debt maturities and assume zero capex,” analysts at Jefferies India Pvt. Ltd mentioned in a word.
Note that the corporate at the moment has an annualised Ebitda of ₹6,100 crore, which is predicted to extend to ₹10,000 crore after sure further value synergies fall in place. This is much brief of what’s wanted for the dues. “Since the last tariff hike was about none months ago, it may be time for another tariff hike. In any case, there is no way Vodafone Idea will survive without meaningful tariff hikes,” says the analyst quoted above.
Jefferies’ analysts say tariffs have to rise by 27% for Vodafone Idea to offset the influence of AGR dues. “Given that after the ~30% tariff hikes in Dec-19, Vodafone Idea’s Ebitda has grown by 20%, it may need additional support from the government in the form of a further 2-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23.”
While the corporate may doubtlessly increase some funds via the sale of its fibre belongings in addition to via refunds and dues owed to it, the actual fact stays that it’ll nonetheless not have the requisite funds to make investments wanted to outlive within the aggressive Indian telco market.
Bharti Airtel Ltd, alternatively, is in a a lot better place, and its market share positive factors are anticipated to proceed, because of Vodafone Idea’s woes. Its shares have risen over 7% because the AGR verdict.
Vodafone Idea misplaced a staggering 5.eight proportion factors in income market share within the June quarter, information from Telecom Regulatory Authority of India reveals.
The firm’s actions will now decide whether or not it plans to merely survive, which can imply continued erosion in market share, or combat again with a sizeable fund infusion.
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