Voda Idea’s safety net at risk after SC verdict on AGR

Vodafone Idea was banking on a favourable judgment from the SC on the calculation of its AGR dues – a judgment that would have reduced its cash shortfall for running the business in FY22. But the expectation by analysts that its AGR could go down by half (from ~8,000 crore per annum) is now history with the court on Friday rejecting its plea. This raises fears on whether it can survive as a going concern.

SURAJEET DAS GUPTA writes

Vodafone Idea (Vi) was banking on a favourable judgment from the Supreme Court on the calculation of its adjusted gross revenue (AGR) dues — a verdict that would have reduced its cash shortfall for running the business in FY22.

But the expectation by analysts that its AGR could go down by half (from ~8,000 crore per annum) is now history with the court on Friday rejecting its plea. This raises fears on whether it can survive as a going concern.

The key question is whether Vi has enough cushion to sail through even FY22. That would depend on whether the government gives it yet another moratorium on paying its spectrum dues (~8,200 crore due in March next year) for a year and if it can pull through by raising an additional ~25,000 crore from investors. If these do not happen, it is in serious trouble.

The reason is simple. Analysts say its estimated cash shortfall would be ~23,400 crore in FY22, taking into consideration its estimated Ebitda (earnings before, interest, tax, depreciation, and amortisation) and the current cash balance.

The decision of Bharti Airtel to raise post-paid tariffs, if emulated by Vi, would help it in increasing its revenues and Ebitda by 1-2 per cent (about 25 per cent of its revenues comes from post-paid). That is still too small to make a substantial material difference to its bottom line and reduce its cash shortage until prepaid tariffs move up substantially, which, analysts say, is unlikely. According to estimates, it would require an ARPU (average revenue per user) increase of two times if it wants to tide over the problem without any capital raise.

But Vi has a plan. It is expecting to garner about ~3,000 crore from monetising its assets as well as from goods and services tax refunds. And it is expecting to get another ~6,400 crore from its shareholder Vodafone plc as part of the original agreement of merger. If that money comes, the cash shoprtfall would come down to ~14,000 crore. So to sail through, the company will need to raise at least ~15,000 crore from investors, which it has promised will happen in a couple of weeks

According to reports, it has sought and received permission from the Department of Telecommunications an enabling provision to raise foreign direct investment of ~15,000 crore. But a name of a buyer is still elusive after its announcement nine months ago to raise funds. And many say with the two key shareholders -- Vodafone plc and A V Birla -- refusing to put in any more money, it’s not going to be easy.

It could be in a happier position if the government gives it a one-year moratorium on paying its instalment of spectrum fees (~8,200 crore) for then it would require an even amount of money to raise from investors.

The auditors of the company in their financial results have perhaps summed up VIL’S dilemma well. In the last quarterly results, they said the assumption of a going concern was dependent on its ability to raise additional funds, refinancing, and regulatory relief.

TO SAIL THROUGH, THE COMPANY WILL NEED TO RAISE AT LEAST ~15,000 CRORE FROM INVESTORS, WHICH IT HAS PROMISED WILL HAPPEN IN A COUPLE OF WEEKS