With no immediate boost in earnings visibility and capital infusion still elusive, analysts say investors must temper their expectations.
In its latest update, the DoT acknowledged VIL’s request to convert interest on AGR dues into equity and confirmed that the final amount for conversion will be determined once audited figures are submitted. Until then, the company has been granted a four-year moratorium on its AGR payments, a move that alleviates near-term cash flow pressure, but does not address the telecom player’s underlying structural issues.
According to domestic brokerage firm Motilal Oswal Financial Services, while the deferment may help preserve cash, Vodafone Idea continues to face formidable hurdles: a Rs 2.2 trillion debt burden, high annual payouts to the government (~Rs 400 billion in spectrum and AGR obligations), and rising network costs.
Motilal Oswal notes that “AGR dues of Rs 4,390 crore are only deferred, not written off”, and these will have to be paid eventually.
Another brokerage firm, JM Financial, echoes this, stating that the company now has breathing room to focus on operational improvements and network investments. However, the firm also reiterates that this relief does not eliminate the liability, and investors should temper expectations of a full revival based on this relief alone.
Despite marginal growth in ARPU (average revenue per user) and flat EBITDA, the brokerage highlights that cash losses are persisting, and subscriber churn continues.Most critically, VIL’s 5G rollout remains on paper. The operator hasn’t made any visible headway on monetizing the 5G spectrum it holds, and the need for a sizeable capital raise, likely upwards of Rs 250 billion, remains unfulfilled.
While promoters have contributed a fresh Rs 20 billion, and the company is reportedly in talks with external investors, concrete commitments have yet to emerge.
Commenting on this equity infusion, Motilal Oswal noted that it is necessary to support VIL’s 4G/5G capex and spectrum payments. However, they also caution that this capital raise could result in “significant equity dilution” for existing shareholders.
JM Financial adds that the delay in equity infusion, pending government nod, remains a key overhang. That said, they acknowledge that the AGR relief clears one major hurdle, possibly helping Vodafone accelerate its capital raise, which is critical for long-term viability.
In this backdrop, Motilal Oswal has retained a ‘neutral’ rating on the stock, with a target price of Rs 11.
What should investors make of this?
While the AGR relief is incrementally positive and ensures VIL stays afloat in the short term, it doesn’t meaningfully improve shareholder value. The key overhangs — equity dilution risk, inability to compete effectively with Jio and Airtel, and lack of fresh capital — persist.
Until the company is able to close a significant fundraising and outline a credible network investment plan, shareholders are likely to continue facing volatility and uncertainty. For now, the takeaway for investors is that Vodafone Idea may still be a long-term turnaround story.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)