The Supreme Court rejected the curative petitions by Vodafone Idea Ltd (VIL) and other telecom operators, who had claimed a re-calculation of their AGR dues. It marked the final nail in the coffin in any hope for VIL and others for relief on the whopping amount of liability due because of AGR-related liabilities. VIL's stock plummeted sharply by 20% on Dalal Street, reflecting grim market sentiment as it negativises the unfavorable judgment. As one of India's leading telecom operators, the judgment raises serious concerns over the future outlook of VIL, as its balance sheet is already strained and under heavy debt burden.
Downgrades and Mixed Forecasts
Various brokerages have revised their views on Vodafone Idea following the court ruling. Nuvama Institutional Equities cut its target on VIL to Rs 11.50 from Rs 16.50. "The VIL stock price has factored in additional liability from the AGR ruling in the recent price correction." Nuvama reiterates a 'Hold' rating. "Going forward, the point of focus should be on VIL's operational performance especially subscriber loss trends, tariff hikes impact and capital expenditure plans.". On the other hand, Nomura India finds a stock-market faltering an opportunity and upgrades the rating from "Neutral" to "Buy". The case was indeed an overhang, but its resolution brings much needed clarity to VIL's path forward. Going ahead, the company will enjoy tariff hikes as well as the monetization through 5G; Nomura expects the EBITDA CAGR to reach 15% between FY24 and FY27. Meanwhile, UBS has estimated the fair value of Vodafone Idea to be between Rs 12 and Rs 24, suggesting that it definitely has more space to recover. The brokerage doesn't rule out the possibility of conversion or deferral of equity into debt and payments to help VIL manage the burden of enormous debt .
Can Vodafone Idea Recover?
Liability reliance now firmly cast on the table, Vodafone Idea's road to recovery rests on several factors. The company needs to arrest the subscriber losses fast, which have arisen; boost its ARPU through tariff increases; and roll out 5G services briskly, as the company has been trailing market leaders in telecom circles through Reliance Jio and Bharti Airtel. Of course, the court's decision is a disappointment; however, the focus will shift onto how the company addresses its debt and operational concerns over the coming years. If it succeeds in that respect, then a way to turn things around remains possible, riding on an improving telecom environment, with themes of rising prices and 5G inclusion. However, going ahead is a blurred road. A looming debt of Rs 70,300 crore and an excessive dependency on government support cast ominous shadows over the long-term stability of the company. Investors and analysts would keenly watch VIL's next steps as the company takes an uphill journey to rebuild its business.
Inputs by Agencies
Image Source: Multiple Agencies
Ⓒ Copyright 2024. All Rights Reserved Powered by Vygr Media.
