Home >Markets >Mark To Market >Voda-Idea gets a shot at survival, but a painful journey lies ahead

The Supreme Court’s AGR ruling has dealt Vodafone Idea Ltd a massive blow, although the troubled telco is still expected to survive. At least that’s what the stock market’s verdict on the court’s ruling appears to be. Vodafone Idea shares are down about 15% compared to where they were just ahead of the ruling, but they are about three times higher compared to the lows of 3 per share a few months ago.

While the telco may just survive for now, its journey will get even more painful.

The Supreme Court has asked telcos to pay 10% of the AGR dues upfront and has set a 10-year payment timeline for the rest of the amount. The annual outgo on account of the AGR dues is estimated at around 7,500 crore. Analysts say Vodafone Idea will need a healthy dose of equity infusion as well as tariff hikes to continue as a going concern.

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“The clock has started ticking for the company in terms of raising requisite equity funds it needs to survive. Large payments will be due from FY22 onwards. The company now has no cash to speak of," says an analyst at a domestic institutional brokerage, requesting anonymity.

“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 said in a note.

It is noteworthy that the company currently has an annualized Ebitda of 6,100 crore, which is expected to increase to 10,000 crore after certain additional cost synergies fall in place. This is far short of what is needed for the dues.

“Since the last tariff hike was about nine 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 need to rise by 27% for Vodafone Idea to offset the impact of AGR dues.

While the company could potentially raise some funds through the sale of its fibre assets as well as through refunds and dues owed to it, the fact remains that it will still not have the requisite funds to make the kind of investments needed to survive in the competitive Indian telecom market.

Bharti Airtel Ltd, on the other hand, is in a much better position, and its market share gains are expected to continue, thanks to Vodafone Idea’s woes. Its shares have risen over 7% since the AGR verdict. Vodafone Idea lost a staggering 5.8 percentage points in revenue market share in the June quarter, data from Telecom Regulatory Authority of India (Trai) shows.

The company’s actions will now determine whether it plans to merely survive, which will mean continued erosion in market share, or fight back with a sizeable fund infusion.

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