Vodafone Idea: KM Birla’s exit, tax relaxations and the road ahead

Vodafone Idea’s shares fell as much as 24% to Rs 4.55 on Thursday, after Kumar Mangalam Birla stepped down as its non-executive chairman, fuelling concerns that the company may not be able to repay its dues to the government. In June, Birla offered to sell his Aditya Birla Group’s 27% stake in Vodafone Idea to keep it afloat.

AGR Dues: Telcos owe Rs 1.47 lakh crore to DoT. It includes Rs 92,600 crore as license fee and Rs 55,100 crore as spectrum usage charges. Of the total amount, Vodafone Idea owes the highest amount to Rs 58,000 crore. The company has asked the Supreme Court to correct the arithmetic error. The company has dues of Rs 58000 crore, and it requested SC to allow them to place their calculation in front of DoT and let them take the final call. But the Supreme Court denied the request to recalculate the dues payable.

Debt : Vodafone Idea’s gross debt, excluding lease liabilities stood at Rs 1.80 lakh crore in March quarter. This comprises deferred spectrum payment obligations of Rs 96,270 crore, AGR liability of Rs 58,000 crore and debt from banks and financial institutions of Rs 23,080 crore. Net debt grew 54% on-quarter to Rs 1.79 lakh crore. Capex spend in the March quarter was Rs 1,540 crore. The company has failed to raise additional debt of Rs 25,000 crore from the investors. The table below shows bank-wise exposure to Vodafone Idea. 

New Taxation Law: Post the market closing on Thursday, Finance Minister Nirmala Sitharaman introduced the Taxation Laws (Amendment) Bill in Lok Sabha. Vodafone Plc has emerged as the chief beneficiary of the Bill. The Bill proposes to amend the Income-tax Act, 1961 post which no tax demand will be raised in future on the basis of retrospective amendment for any indirect transfer of Indian assets, if the transaction was undertaken before 28th May, 2012. The government has had a tax demand of more than Rs 22,000 crore against Vodafone Plc since 2010. Although the demand has been disputed, the matter was one of the key reasons for Vodafone Plc to exit India. But now that the issue was closer to resolution, there are talks that Vodafone Plc could infuse more cash into the beleaguered Vodafone idea and revive the company. Following this news, Vodafone Idea shares recovered 20% to end Friday's session at Rs 7.1 on BSE. 

Potential merger with BSNL

According to media reports, investors in Vodafone Idea are ready to part with their stake in the company to bankers or to state-owned telecom operator BSNL for free. In case of a merger with BSNL, the company’s dues would be put on hold as it the merged company would become a government entity, and in case if the stake is taken over by lenders, they would have to further infuse money to keep the company afloat. While such a proposal is yet to reach BSNL or its parent, the Department of Telecommunications (DoT), a bailout package is the need of the hour to save the firm and its nearly 10,000 employees. 

Road Ahead: 

• After eleven consecutive quarters of losses, it would be difficult for Vodafone Idea to bounce back, unless it is able to raise additional capital. The huge debt pile of Rs 1.8 lakh crore is also a major concern. 
• Analysts wonder whether the company can ever generate the cash to be able to pay up the AGR dues of more than 58,000 crore. The EBITDA in FY21 was just short of Rs 17,000 crore while the losses were a staggering Rs 7,027 crore. Unless the ARPU increases three-fold from levels of Rs 107 in March, and the subscriber base starts to grow, the company’s future outlook looks bleak. 

The company’s ability to continue as a going concern is dependent on its ability to raise additional funds, successful negotiations with lenders on continued support, refinancing of debts and monetization of certain assets. Some analysts are of the view that the government will step in to save the company, as it owes more than 30,000 crore to banks. Further, Vodafone Idea also has a very large subscriber base of more than 28 crore. However, more clarity is awaited on this.