SC Upholds AGR Verdict; Vodafone, Idea Shares Nosedive

The stock price of Vodafone Idea and Indus Tower plunged 15 per cent and 10 per cent respectively after the apex court dismissed telecom firms’ request to recalculate their adjusted gross revenue (AGR) dues.

Vodafone Idea fell as much as 15 per cent to Rs 10.92, whereas Indus Tower traded 8.5 per cent down to Rs 391 in the afternoon session on the National Stock Exchange (NSE).

Curative petition filed by Vodafone Idea and Bharti Airtel claimed that the department of telecommunications had calculated their dues incorrectly.

Three primary reliefs were requested in Vodafone Idea's curative petition in the AGR case which included rectification of mathematical and typographical errors in the AGR demand, restriction of the penalty to 50 per cent of the shortfall and adjustment of the penalty's interest rate to 2 per cent above the prime lending rate of the State Bank of India.

According to IIFL Securities, the cash flow situation for Vodafone Idea is expected to become more challenging without relief from the court. The dismissal of the curative petition brings a slight positive outlook for Bharti Airtel, especially concerning potential market share gains.

However, it remains to be seen whether Vodafone Idea can proceed with its debt- raising plans following the unfavourable Supreme Court verdict. Raising debt is crucial for Vodafone Idea to continue with its capital expenditure plans.

On 06 September, Goldman Sachs reaffirmed its bearish rating on troubled firm Vodafone Idea. The brokerage believed that the country's third-largest telecom operator will be unable to defend its falling market-share, despite its recent fund raise.

"Our analysis suggests a direct correlation between capex and revenue market share, and given our expectation of peers spending at least 50 per cent higher capex versus Vodafone Idea, we forecast another 300 bps share loss for the company over the next three to four years," said Goldman Sachs in its report.

In an optimistic scenario where the company's AGR dues are slashed by 65 percent, tariffs consistently increase, and no near-term government repayments are required, Goldman saw a best-case implied value per share of Rs 19.

On 15 July, the Supreme Court acknowledged Vodafone Idea's submission challenging its 2019 ruling on payments owed to the government.

In the year 2024 so far, Share price of Vodafone Idea eroded more than 32 per cent, compared to the benchmark index, Nifty gain of nearly 17 per cent year-to-date (YTD).