ICICI Direct: AGR Verdict - Vodafone Survival Still An Uphill Task

ICICI Direct Report

The Supreme Court verdict on adjusted gross revenue (AGR) dues, allowing 10 years staggered payment and clarifying on spectrum trading/sharing liabilities, possibly marks the end of a long-drawn legal tangle.

For the sector, as a whole, the issues now shift to tariff hike, which will be the key determinant to the path of improvement in cash flow generation, return ratio and survival in case of Vodafone Idea Ltd.

For Bharti Airtel Ltd. (assuming it also has to pay Videocon Industries Ltd.’s dues), annuity payment of Rs 4,638 crore from FY22 end onwards, will not be a major issue.

However, Vodafone Idea which has already been plagued by cash burns will find it difficult to meet the demand of annuity payment of Rs 8,391 crore from FY22 end onwards.

Apart from tariff hike (to the tune of approximately 92%), it would also need immediate capital infusion to bridge the cash gap.

The judgement requires 10% of ‘total dues’ to be paid before March 31, 2021 and remaining in 10 equal instalments.

We assume that since both Vodafone Idea and Bharti Airtel have already paid more than 10% of dues, payout should begin from FY22 end.

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