Vodafone Idea update!

Last updated: 26 Sep, 2020 | 09:26 am

Vodafone Idea update!
  • Vodafone Idea shares closed 12% higher at ₹10.20 on BSE after Vodafone Group Plc (the foreign parent) won an arbitration case against the Indian government over retrospective tax demand for around Rs 20,000 crore.
  • The shares gained on expectations that the ruling in favour of the parent firm Group Vodafone Plc may ease the burden on Vodafone’s India venture, given Vodafone Idea’s heavy AGR dues.

AGR dues of Vodafone Idea

  • On 2nd September, the Supreme Court allowed only a 10-year window for the telcos to repay their outstanding AGR dues.  According to the court order, the 10-year timeline for payment of AGR dues will begin on April 1, 2021, and the companies need to pay 10% upfront by March 31, 2021.
  • As Vodafone Idea has already paid more than 10% of outstanding dues, it will have to make payments from March 2022. Vodafone Idea has outstanding dues of about ₹54,000 crore. As per estimates by ICICI Direct, Vodafone Idea will have to pay up ₹8,631 crores annually from FY22. 

Financial position of Vodafone Idea

  • Vodafone Idea had reported a consolidated EBITDA of about ₹5,800 crore in FY20. The amount of outflow calculated by ICICI Direct represents about 144% of FY20 EBITDA!
  • “Jefferies has estimated that Vodafone Idea will have to pay ₹5,000 crore upfront possibly by FY22, post which it will have to pay ₹6,800 crore (111% of EBITDA) annually from FY23.” Added to this is the interest burden, as Vodafone Idea has a debt of about ₹1.75 lakh crore.  
  • Apart from tariff hike (to the tune of approximately 92%), Vodafone Idea would also need immediate capital infusion to bridge the cash gap.
  • Earlier this month, Vodafone Idea had announced plans to raise up to ₹25,000 crore through share sale and debt.

INDmoney Analysis

While the ruling comes as a welcome relief for Vodafone Group Plc, it will not have any material impact on Indian subsidiary Vodafone Idea. After Vodafone Idea’s fund-raising plan earlier this month, Vodafone Group Plc had said that it will not infuse any fresh capital into the Indian subsidiary. Currently, Vodafone Group holds 44.39% in the telco, with the Aditya Birla Group owning 27.66%.

While the Supreme Court’s judgement on AGR has given a fresh lease of life to Vodafone Idea, the window for Vodafone Idea to raise funds, have better models and give paybacks commitment is small.

Consensus recommendation: Hold (Based on views of 15 analysts from external institutions)

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