Shares of Vodafone Idea Ltd (VIL), also known as Idea, plummeted nearly 20% after an unfavorable Supreme Court ruling regarding adjusted gross revenue (AGR) dues. The court dismissed the company’s curative petition, seeking a re-calculation of these dues, dealing a significant blow to the telecom operator’s hopes for financial relief.
Vodafone Idea, along with other telecom companies in India, has been entangled in a protracted legal battle concerning AGR dues. In 2019, the Supreme Court mandated that telecom operators owed substantial sums to the government based on a comprehensive definition of AGR. This ruling placed a considerable financial strain on Vodafone Idea.
The recent Supreme Court decision solidified the company’s obligation to pay the full AGR dues, estimated at a staggering Rs 70,300 crore (approximately $8.5 billion USD). This news triggered a massive sell-off, resulting in the sharp decline in Idea’s share price. The dismissal of the curative petition eliminated any remaining hope for reducing the financial burden.
Following the stock’s dramatic plunge, various brokerage firms offered their perspectives on Vodafone Idea’s future. These opinions ranged from cautious recommendations to identifying potential buying opportunities, reflecting the uncertainty surrounding the company’s prospects.
Nuvama Institutional Equities maintained a “Hold” recommendation on the stock, acknowledging the Supreme Court decision as a major setback. While the 20% drop in share price largely reflects the increased liability, Nuvama adjusted its target price downward to Rs 11.50 from Rs 16.50. The firm emphasized the importance of monitoring key operational metrics such as subscriber churn, tariff adjustments, and capital expenditure.
Nomura India, conversely, upgraded its recommendation to “Buy” with a target price of Rs 15. They believe the worst is behind Vodafone Idea now that the AGR issue is resolved. While acknowledging the substantial debt, Nomura anticipates government support will enable the company to recover and rebuild. The firm cited the positive outlook for the Indian telecom sector, driven by anticipated tariff increases and the potential for 5G monetization. Nomura projects a 15% compound annual growth rate (CAGR) in EBITDA from FY24 to FY27, based on a 12% rise in average revenue per user (ARPU) and reduced subscriber losses.
UBS provided a fair value estimate for Vodafone Idea between Rs 12 and Rs 24, indicating the stock’s current price might be undervalued. However, they cautioned about risks associated with the company’s debt and financial stability. Potential options like equity conversion or payment deferral remain possibilities as Vodafone Idea strives to stabilize its finances. The substantial debt load and uncertainty surrounding government support contribute to the ongoing volatility in Idea’s share price.
